T-Mobile US, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of T-Mobile US, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of T-Mobile US, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Changes in Accounting Principles As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues in 2018. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded certain elements of the internal control over financial reporting of Sprint from its assessment of the Company’s internal control over financial reporting as of December 31, 2020 because it was acquired by the Company in a purchase business combination during 2020. Subsequent to the acquisition, the Company integrated certain elements of Sprint’s internal control over financial reporting and related processes into the Company’s existing systems, internal control over financial reporting and related processes. The Sprint controls that were not integrated have been excluded from management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. We have also excluded these elements of the internal 59 Index for Notes to the Consolidated Financial Statements control over financial reporting of Sprint from our audit of the Company’s internal control over financial reporting. The excluded elements of Sprint represent controls over approximately 14% of consolidated assets and approximately 30% of the consolidated total revenues as of and for the year ended December 31, 2020. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Acquisition of Sprint Corporation - Accounting and Valuation of the Acquired Spectrum License Portfolio As described in Notes 1 and 2 to the consolidated financial statements, the Company completed its acquisition of Sprint Corporation for a total consideration of $40.8 billion on April 1, 2020. The Company measured the identifiable assets acquired and liabilities assumed at fair value, which resulted in the recognition of $45.4 billion of Federal Communications Commission (“FCC”) spectrum licenses, a portion of which relates to lease agreements (the “Agreements”) with various educational and non-profit institutions that provide the Company with the right to use FCC spectrum licenses (Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. Management applied judgment in determining the Agreements enhance the overall value of the Company's owned spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This enhanced value from combining owned and leased spectrum licenses is referred to as an aggregation premium, which is a component of the overall fair value of FCC spectrum licenses, which are recognized as indefinite-lived intangible assets. Management also applied judgment in estimating the overall value of the Spectrum License portfolio using the income approach, specifically a Greenfield model, which involved the use of key assumptions with respect to the discount rate, market share, estimated capital and operating expenditures, forecasted service revenue and long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network. The principal considerations for our determination that performing procedures relating to the accounting and valuation of the acquired Spectrum License portfolio in the acquisition of Sprint Corporation is a critical audit matter are (i) the significant judgment by management in determining the accounting for the leased EBS spectrum arrangements, as well as estimating the fair value of the acquired Spectrum License portfolio; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s accounting for the leased EBS spectrum portion of the portfolio as well as evaluating management’s significant assumptions related to the discount rate, market share, estimated capital and operating expenditures, forecasted service revenue and long-term growth rate used in estimating the fair value of the acquired Spectrum License portfolio; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the accounting for the leased EBS spectrum arrangements and estimating the fair value of the acquired Spectrum License portfolio. These procedures also included, among others, (i) reading the purchase agreement and Spectrum License lease agreements; (ii) evaluating management’s assessment related to the accounting for the leased EBS spectrum arrangements; and (iii) testing 60 Index for Notes to the Consolidated Financial Statements management’s process for estimating the fair value of the acquired Spectrum License portfolio. Testing management’s process included evaluating the appropriateness of the valuation methodology, and evaluating the reasonableness of management’s significant assumptions related to the discount rate, market share, estimated capital and operating expenditures, forecasted service revenue and long-term growth rate. Evaluating the significant assumptions included considering (i) the cost of capital of comparable businesses and consistency with other valuations for the discount rate; (ii) industry factors and historical results for market share; (iii) historical results, and industry data for the estimated capital and operating expenditures and forecasted service revenue assumptions; and (iv) industry and market factors for the long-term growth rate. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the discount rate and long-term growth rate assumptions. Acquisition of Sprint Corporation - Accounting for the Acquired Lease-out and Leaseback Arrangement with Crown Castle International Corp. As described in Notes 2 and 9 to the consolidated financial statements, in the acquisition of Sprint Corporation, the Company measured the identifiable assets acquired and liabilities assumed at fair value, which resulted in the recognition of property and equipment with a fair value of $2.8 billion and tower obligations related to amounts owed to Crown Castle International Corp. (“CCI”) under the leaseback of $1.1 billion. Additionally, $1.7 billion in other long-term liabilities were recognized associated with contract terms that are unfavorable to current market rates, which includes unfavorable terms associated with the fixed-price purchase option in 2037. Prior to the Merger, Sprint entered into a lease-out and leaseback arrangement with Global Signal Inc., a third party that was subsequently acquired by CCI, that conveyed to CCI the exclusive right to manage and operate approximately 6,400 tower sites via prepaid master lease. These agreements were assumed upon the close of the Merger, at which point the remaining term of the lease-out was approximately 17 years with no renewal options. CCI has a fixed-price purchase option for all (but not less than all) of the leased or subleased sites for approximately $2.3 billion, exercisable one year prior to the expiration of the agreement and ending 120 days prior to the expiration of the agreement. The Company leases back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms. The principal considerations for our determination that performing procedures relating to accounting for the acquired lease-out and leaseback arrangement with CCI in the acquisition of Sprint Corporation is a critical audit matter are (i) the significant judgment by management in determining the accounting to reflect the acquisition of the tower lease arrangement; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s accounting for and presentation of the owned leased asset and related liabilities and identification of each unit of account within the transaction; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the accounting for acquired lease-out and leaseback arrangement with CCI. These procedures also included, among others, (i) reading the purchase agreement and Global Signal Inc. lease agreements; (ii) evaluating management’s accounting for and presentation of the owned leased asset and related liabilities; and (iii) evaluating management’s identification of each unit of account within the transaction. Professionals with specialized skill and knowledge were used to assist in evaluating management’s accounting assessment of the acquired lease-out and leaseback arrangement with CCI. /s/ PricewaterhouseCoopers LLP Seattle, Washington February 23, 2021 We have served as the Company’s auditor since 2001. 61 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Consolidated Balance Sheets (in millions, except share and per share amounts) December 31, 2020 December 31, 2019 Assets Current assets Cash and cash equivalents $ 10,385 $ 1,528 Accounts receivable, net of allowance for credit losses of $ 194 and $ 61 4,254 1,888 Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $ 478 and $ 333 3,577 2,600 Accounts receivable from affiliates 22 20 Inventory 2,527 964 Prepaid expenses 624 333 Other current assets 2,496 1,972 Total current assets 23,885 9,305 Property and equipment, net 41,175 21,984 Operating lease right-of-use assets 28,021 10,933 Financing lease right-of-use assets 3,028 2,715 Goodwill 11,117 1,930 Spectrum licenses 82,828 36,465 Other intangible assets, net 5,298 115 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $ 127 and $ 66 2,031 1,583 Other assets 2,779 1,891 Total assets $ 200,162 $ 86,921 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 10,196 $ 6,746 Payables to affiliates 157 187 Short-term debt 4,579 25 Deferred revenue 1,030 631 Short-term operating lease liabilities 3,868 2,287 Short-term financing lease liabilities 1,063 957 Other current liabilities 810 1,673 Total current liabilities 21,703 12,506 Long-term debt 61,830 10,958 Long-term debt to affiliates 4,716 13,986 Tower obligations 3,028 2,236 Deferred tax liabilities 9,966 5,607 Operating lease liabilities 26,719 10,539 Financing lease liabilities 1,444 1,346 Other long-term liabilities 5,412 954 Total long-term liabilities 113,115 45,626 Commitments and contingencies (Note 18) Stockholders' equity Common Stock, par value $ 0.00001 per share, 2,000,000,000 shares authorized; 1,243,345,584 and 858,418,615 shares issued, 1,241,805,706 and 856,905,400 shares outstanding — — Additional paid-in capital 72,772 38,498 Treasury stock, at cost, 1,539,878 and 1,513,215 shares issued ( 11 ) ( 8 ) Accumulated other comprehensive loss ( 1,581 ) ( 868 ) Accumulated deficit ( 5,836 ) ( 8,833 ) Total stockholders' equity 65,344 28,789 Total liabilities and stockholders' equity $ 200,162 $ 86,921 The accompanying notes are an integral part of these consolidated financial statements. 62 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Consolidated Statements of Comprehensive Income Year Ended December 31, (in millions, except share and per share amounts) 2020 2019 2018 Revenues Postpaid revenues $ 36,306 $ 22,673 $ 20,862 Prepaid revenues 9,421 9,543 9,598 Wholesale revenues 2,590 1,279 1,183 Roaming and other service revenues 2,078 1,005 798 Total service revenues 50,395 34,500 32,441 Equipment revenues 17,312 9,840 10,009 Other revenues 690 658 860 Total revenues 68,397 44,998 43,310 Operating expenses Cost of services, exclusive of depreciation and amortization shown separately below 11,878 6,622 6,307 Cost of equipment sales, exclusive of depreciation and amortization shown separately below 16,388 11,899 12,047 Selling, general and administrative 18,926 14,139 13,161 Impairment expense 418 — — Depreciation and amortization 14,151 6,616 6,486 Total operating expenses 61,761 39,276 38,001 Operating income 6,636 5,722 5,309 Other income (expense) Interest expense ( 2,483 ) ( 727 ) ( 835 ) Interest expense to affiliates ( 247 ) ( 408 ) ( 522 ) Interest income 29 24 19 Other expense, net ( 405 ) ( 8 ) ( 54 ) Total other expense, net ( 3,106 ) ( 1,119 ) ( 1,392 ) Income from continuing operations before income taxes 3,530 4,603 3,917 Income tax expense ( 786 ) ( 1,135 ) ( 1,029 ) Income from continuing operations 2,744 3,468 2,888 Income from discontinued operations, net of tax 320 — — Net income $ 3,064 $ 3,468 $ 2,888 Net income $ 3,064 $ 3,468 $ 2,888 Other comprehensive loss, net of tax Unrealized loss on cash flow hedges, net of tax effect of $( 250 ), $( 187 ), and $( 115 ) ( 723 ) ( 536 ) ( 332 ) Unrealized gain on foreign currency translation adjustment, net of tax effect of $ 1 , $ 0 and $ 0 4 — — Net unrecognized gain (loss) on pension and other postretirement benefits, net of tax effect of $ 2 , $ 0 and $ 0 6 — — Other comprehensive loss ( 713 ) ( 536 ) ( 332 ) Total comprehensive income $ 2,351 $ 2,932 $ 2,556 Earnings per share Basic earnings per share: Continuing operations $ 2.40 $ 4.06 $ 3.40 Discontinued operations 0.28 — — Basic $ 2.68 $ 4.06 $ 3.40 Diluted earnings per share: Continuing operations $ 2.37 $ 4.02 $ 3.36 Discontinued operations 0.28 — — Diluted $ 2.65 $ 4.02 $ 3.36 Weighted average shares outstanding Basic 1,144,206,326 854,143,751 849,744,152 Diluted 1,154,749,428 863,433,511 858,290,174 The accompanying notes are an integral part of these consolidated financial statements. 63 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Consolidated Statements of Cash Flows Year Ended December 31, (in millions) 2020 2019 2018 Operating activities Net income $ 3,064 $ 3,468 $ 2,888 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 14,151 6,616 6,486 Stock-based compensation expense 694 495 424 Deferred income tax expense 822 1,091 980 Bad debt expense 602 307 297 Losses from sales of receivables 36 130 157 Deferred rent expense — — 26 Losses on redemption of debt 371 19 122 Impairment expense 418 — — Changes in operating assets and liabilities Accounts receivable ( 3,273 ) ( 3,709 ) ( 4,617 ) Equipment installment plan receivables ( 1,453 ) ( 1,015 ) ( 1,598 ) Inventories ( 2,222 ) ( 617 ) ( 201 ) Operating lease right-of-use assets 3,465 1,896 — Other current and long-term assets ( 402 ) ( 144 ) ( 181 ) Accounts payable and accrued liabilities ( 2,123 ) 17 ( 867 ) Short and long-term operating lease liabilities ( 3,699 ) ( 2,131 ) — Other current and long-term liabilities ( 2,178 ) 144 ( 69 ) Other, net 367 257 52 Net cash provided by operating activities 8,640 6,824 3,899 Investing activities Purchases of property and equipment, including capitalized interest of $ 440 , $ 473 and $ 362 ( 11,034 ) ( 6,391 ) ( 5,541 ) Purchases of spectrum licenses and other intangible assets, including deposits ( 1,333 ) ( 967 ) ( 127 ) Proceeds from sales of tower sites — 38 — Proceeds related to beneficial interests in securitization transactions 3,134 3,876 5,406 Net cash related to derivative contracts under collateral exchange arrangements 632 ( 632 ) — Acquisition of companies, net of cash and restricted cash acquired ( 5,000 ) ( 31 ) ( 338 ) Proceeds from the divestiture of prepaid business 1,224 — — Other, net ( 338 ) ( 18 ) 21 Net cash used in investing activities ( 12,715 ) ( 4,125 ) ( 579 ) Financing activities Proceeds from issuance of long-term debt 35,337 — 2,494 Payments of consent fees related to long-term debt ( 109 ) — — Proceeds from borrowing on revolving credit facility — 2,340 6,265 Repayments of revolving credit facility — ( 2,340 ) ( 6,265 ) Repayments of financing lease obligations ( 1,021 ) ( 798 ) ( 700 ) Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities ( 481 ) ( 775 ) ( 300 ) Repayments of long-term debt ( 20,416 ) ( 600 ) ( 3,349 ) Issuance of common stock 19,840 — — Repurchases of common stock ( 19,536 ) — ( 1,071 ) Proceeds from issuance of short-term debt 18,743 — — Repayments of short-term debt ( 18,929 ) — — Tax withholdings on share-based awards ( 439 ) ( 156 ) ( 146 ) Cash payments for debt prepayment or debt extinguishment costs ( 82 ) ( 28 ) ( 212 ) Other, net 103 ( 17 ) ( 52 ) Net cash provided by (used in) financing activities 13,010 ( 2,374 ) ( 3,336 ) Change in cash and cash equivalents, including restricted cash 8,935 325 ( 16 ) Cash and cash equivalents, including restricted cash Beginning of period 1,528 1,203 1,219 End of period $ 10,463 $ 1,528 $ 1,203 The accompanying notes are an integral part of these consolidated financial statements. 64 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Consolidated Statement of Stockholders’ Equity (in millions, except shares) Common Stock Outstanding Treasury Shares at Cost Par Value and Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Balance as of December 31, 2017 859,406,651 $ ( 4 ) $ 38,629 $ 8 $ ( 16,074 ) $ 22,559 Net income — — — — 2,888 2,888 Other comprehensive loss — — — ( 332 ) — ( 332 ) Stock-based compensation — — 473 — — 473 Exercise of stock options 187,965 — 3 — — 3 Stock issued for employee stock purchase plan 2,011,794 — 103 — — 103 Issuance of vested restricted stock units 7,448,148 — — — — — Issuance of restricted stock awards 225,799 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 2,321,827 ) — ( 146 ) — — ( 146 ) Repurchases of common stock ( 16,738,758 ) — ( 1,054 ) — — ( 1,054 ) Transfer RSU to NQDC plan ( 39,455 ) ( 2 ) 2 — — — Prior year Retained Earnings (1) — — — ( 8 ) 232 224 Balance as of December 31, 2018 850,180,317 ( 6 ) 38,010 ( 332 ) ( 12,954 ) 24,718 Net income — — — — 3,468 3,468 Other comprehensive loss — — — ( 536 ) — ( 536 ) Stock-based compensation — — 517 — — 517 Exercise of stock options 85,083 — 1 — — 1 Stock issued for employee stock purchase plan 2,091,650 — 124 — — 124 Issuance of vested restricted stock units 6,685,950 — — — — — Issuance of restricted stock awards ( 24,682 ) — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 2,094,555 ) — ( 156 ) — — ( 156 ) Transfer RSU from NQDC plan ( 18,363 ) ( 2 ) 2 — — — Prior year Retained Earnings (1) — — — — 653 653 Balance as of December 31, 2019 856,905,400 ( 8 ) 38,498 ( 868 ) ( 8,833 ) 28,789 Net income — — — — 3,064 3,064 Other comprehensive loss — — — ( 713 ) — ( 713 ) Executive put option ( 342,000 ) — 1 — — 1 Stock-based compensation — — 750 — — 750 Exercise of stock options 906,295 — 48 — — 48 Stock issued for employee stock purchase plan 2,144,036 — 148 — — 148 Issuance of vested restricted stock units 13,263,434 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 4,441,107 ) — ( 439 ) — — ( 439 ) Transfer RSU from NQDC plan ( 26,662 ) ( 3 ) 3 — — — Shares issued in secondary offering (2) 198,314,426 — 19,766 — — 19,766 Shares repurchased from SoftBank (3) ( 198,314,426 ) — ( 19,536 ) — — ( 19,536 ) Merger consideration 373,396,310 — 33,533 — — 33,533 Prior year Retained Earnings (1) — — — — ( 67 ) ( 67 ) Balance as of December 31, 2020 1,241,805,706 $ ( 11 ) $ 72,772 $ ( 1,581 ) $ ( 5,836 ) $ 65,344 (1) Prior year Retained Earnings represents the impact of the adoption of new accounting standards on beginning Accumulated Deficit and Accumulated Other Comprehensive Loss. See Note 1 – Summary of Significant Accounting Policies for further information. (2) Shares issued includes 5.0 million shares purchased by Marcelo Claure. (3) In connection with the SoftBank Monetization (as defined below), we received a payment of $ 304 million from SoftBank (as defined below). This amount, net of tax, was treated as a reduction of the purchase price of the shares acquired from SoftBank and was recorded as Additional paid-in capital. The accompanying notes are an integral part of these consolidated financial statements 65 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Index for Notes to the Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 67 Note 2 Business Combination 80 Note 3 Receivables and Expected Credit Losses 86 Note 4 Sales of Certain Receivables 88 Note 5 Property and Equipment 91 Note 6 Goodwill, Spectrum License Transactions and Other Intangible Assets 92 Note 7 Fair Value Measurements 94 Note 8 Debt 97 Note 9 Tower Obligations 104 Note 10 Revenue from Contracts with Customers 105 Note 11 Employee Compensation and Benefit Plans 107 Note 12 Discontinued Operations 111 Note 13 Income Taxes 113 Note 14 SoftBank Equity Transaction 115 Note 15 Repurchases of Common Stock 117 Note 16 Earnings Per Share 118 Note 17 Leases 118 Note 18 Commitments and Contingencies 120 Note 19 Restructuring Costs 122 Note 20 Additional Financial Information 123 Note 2 1 Subsequent Events 125 66 Index for Notes to the Consolidated Financial Statements T-Mobile US, Inc. Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies Description of Business T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”), together with its consolidated subsidiaries, is a leading provider of mobile communications services, including voice, messaging and data, under its flagship brands, T-Mobile and Metro™ by T-Mobile ("Metro by T-Mobile"), in the United States, Puerto Rico and the U.S. Virgin Islands. Substantially all of our revenues were earned in, and substantially all of our long-lived assets are located in, the U.S., Puerto Rico and the U.S. Virgin Islands. We provide mobile communications services primarily using our 4G Long-Term Evolution (“LTE”) network and our 5G technology network. We also offer a wide selection of wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans (“EIP”) and leasing through JUMP! On Demand™. Additionally, we provide reinsurance for device insurance policies and extended warranty contracts offered to our mobile communications customers. Basis of Presentation The consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIE”) where we are deemed to be the primary beneficiary and VIEs, which cannot be deconsolidated, such as those related to Tower obligations. Intercompany transactions and balances have been eliminated in consolidation. We operate as a single operating segment. On April 29, 2018, we entered into a Business Combination Agreement (the “Business Combination Agreement”) to merge with Sprint Corporation (“Sprint”) in an all-stock transaction at a fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). On April 1, 2020, we completed the Merger and acquired Sprint (see Note 2 - Business Combination ). On July 26, 2019, pursuant to the requirement as set forth in the U.S. Department of Justice’s (the “DOJ”) complaint and proposed final judgement (the “Consent Decree”), T-Mobile entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH Network Corporation (“DISH”). Pursuant to the Asset Purchase Agreement and upon the terms and subject to the conditions thereof, on July 1, 2020, DISH acquired the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”) and assumed certain related liabilities (the “Prepaid Transaction”). Upon closing of the Prepaid Transaction, we received $ 1.4 billion from DISH, subject to a working capital adjustment. The revenues and expenses of the Prepaid Business are presented as discontinued operations for the year ended December 31, 2020. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances, including but not limited to the valuation of assets acquired and liabilities assumed through the Merger with Sprint and the potential impacts arising from the COVID-19 pandemic (the “Pandemic”). These estimates are inherently subject to judgment and actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year's presentation. Business Combination Assets acquired and liabilities assumed as part of a business combination are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of 67 Index for Notes to the Consolidated Financial Statements future revenues and expenses associated with an asset or liability. See N ote 2 – Business Combination for further discussion of the Merger between T-Mobile and Sprint. Cash and Cash Equivalents Cash equivalents consist of highly liquid money market funds and U.S. Treasury securities with remaining maturities of three months or less at the date of purchase. Receivables and Allowance for Credit Losses Accounts Receivable Accounts receivable consists primarily of amounts currently due from customers (e.g., for wireless services and monthly device lease payments), device insurance administrators, wholesale partners, other carriers and third-party retail channels. Accounts receivable are presented in our Consolidated Balance Sheets at the amortized cost basis (i.e., the receivables’ outstanding principal balance adjusted for any write-offs), net of the allowance for expected credit losses. We have an arrangement to sell certain of our customer service accounts receivable on a revolving basis, which are treated as sales of financial assets. Equipment Installment Plan Receivables We offer certain retail customers the option to pay for their devices and other purchases in installments, generally over a period of 24 months using an EIP. EIP receivables are presented in our Consolidated Balance Sheets at the amortized cost basis (i.e., the receivables’ unpaid principal balance adjusted for any write-offs and unamortized discounts), net of the allowance for expected credit losses. At the time of an installment sale, we impute a discount for interest if the term exceeds 12 months as there is no stated rate of interest on the receivables. The receivables are recorded at their present value, which is determined by discounting expected future cash payments at the imputed interest rate. This adjustment results in a discount or reduction in transaction price which is allocated to the performance obligations and reduces Service revenues and Equipment revenues in our Consolidated Statements of Comprehensive Income. The imputed discount rate is the current market interest rate and is predominately comprised of the estimated credit risk underlying the EIP receivable, reflecting the estimated credit worthiness of the customer. The imputed discount on receivables is amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Consolidated Statements of Comprehensive Income. The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in our Consolidated Balance Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets. Allowance for Credit Losses We maintain an allowance for expected credit losses and determine its appropriateness through an established process that assesses the lifetime credit losses that we expect to incur related to our receivable portfolio. Our process involves procedures to appropriately consider the unique risk characteristics of our accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. Our allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions that affect loss expectations, such as changes in credit and collections policies and forecasts of macro-economic conditions. While we attribute portions of the allowance to our respective accounts receivable and EIP portfolio segments, the entire allowance is available to credit losses related to the total receivable portfolio. We consider a receivable past due and delinquent when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), based on factors such as customer credit ratings as well as the length of time the amounts are past due. If there is a deterioration of our customers’ financial condition or if future actual default rates on receivables in general differ from those currently anticipated, we will adjust our allowance for credit losses accordingly, which may materially affect our financial results in the period the adjustments are made. 68 Index for Notes to the Consolidated Financial Statements Inventories Inventories consist primarily of wireless devices and accessories, which are valued at the lower of cost or net realizable value. Cost is determined using standard cost which approximates average cost. Shipping and handling costs paid to wireless device and accessories vendors as well as costs to refurbish used devices are included in the standard cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of disposal and transportation. We record inventory write-downs to net realizable value for obsolete and slow-moving items based on inventory turnover trends and historical experience. Deferred Purchase Price Assets In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including estimated customer default rates and credit worthiness. See Note 4 – Sales of Certain Receivables for further information. Long-Lived Assets Long-lived assets include assets that do not have indefinite lives, such as property and equipment and other intangible assets. Substantially all of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the undiscounted cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value. Property and Equipment Property and equipment consists of buildings and equipment, wireless communications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communications systems include assets to operate our wireless network and IT data centers, including tower assets and leasehold improvements and assets related to the liability for the retirement of long-lived assets. Leasehold improvements include asset improvements other than those related to the wireless network. Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit using the straight-line method. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term. Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which include obtaining zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets. We record an asset retirement obligation for the estimated fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily 69 Index for Notes to the Consolidated Financial Statements to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located. We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project and ceases once the project is ready for its intended use. Capitalized software costs are included in Property and equipment, net in our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred. Device Leases Through the Merger, we acquired device lease contracts in which Sprint is the lessor (the “Sprint Flex Lease Program”), substantially all of which are classified as operating leases, as well as the associated fixed assets (i.e., the leased devices). These leased devices were recorded as fixed assets at their acquisition date fair value and presented within Property and equipment, net on our Consolidated Balance Sheets. Our leasing programs (“Leasing Programs”), which include JUMP! On Demand and the Sprint Flex Lease Program acquired through the Merger, allow customers to lease a device (handset or tablet) over a period of, generally, 18 months and upgrade it for a new device when eligibility requirements are met. We depreciate leased devices to their estimated residual value, on a group basis, using the straight-line method over the estimated useful life of the device. The estimated useful life reflects the period for which we estimate the group of leased devices will provide utility to us, which may be longer than the initial lease term based on customer options in the Sprint Flex Lease program to renew the lease on a month-to-month basis after the initial lease term concludes. In determining the estimated useful life, we consider the lease term (e.g., 18 months and month-to-month renewal options for the Sprint Flex Lease Program), trade-in activity and write-offs for lost and stolen devices. Lost and stolen devices are incorporated into the estimates of depreciation expense and recognized as an adjustment to accumulated depreciation when the loss event occurs. Our policy of using the group method of depreciation has been applied to acquired leased devices as well as leases originated subsequent to the Merger. Acquired leased devices are grouped based on the age of the device. Revenues associated with the leased wireless devices, net of lease incentives, are generally recognized on a straight-line basis over the lease term. For arrangements in which we are the lessor of wireless devices, we separate lease and non-lease components. Upon device upgrade or at lease end, customers in the JUMP! On Demand lease program must return or purchase their device, and customers in the Sprint Flex Lease Program have the option to return or purchase their device or to renew their lease on a month-to-month basis. The purchase price of the device is established at lease commencement and is based on the type of device leased and any down payment made. The Leasing Programs do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Returned devices, including those received upon device upgrade, are transferred from Property and equipment, net to Inventory on our Consolidated Balance Sheets and are valued at the lower of cost or net realizable value, with any write-down recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income. Other Intangible Assets Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists and the Sprint trade name are amortized using the sum-of-the-years digits method over the period in which the asset is expected to contribute to future cash flows. The remaining finite-lived intangible assets are amortized using the straight-line method. Goodwill and Indefinite-Lived Intangible Assets Goodwill Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our two reporting units, wireless and Layer3. 70 Index for Notes to the Consolidated Financial Statements Spectrum Licenses Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. While spectrum licenses are issued for a fixed period of time, typically for up to 15 years, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses held by us expire at various dates. We believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at nominal costs. Moreover, we determined there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets. At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment. The licenses are transferred at their carrying value, as adjusted for any impairment recognized, to assets held for sale, which is included in Other current assets in our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are recorded at fair value and the difference between the fair value of the spectrum licenses obtained, carrying value of the spectrum licenses transferred and cash paid, if any, is recognized as a Gain (loss) on disposal of spectrum licenses included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at our carrying value of the spectrum assets transferred or exchanged. Spectrum Leases Through the Merger, the Company acquired lease agreements (the “Agreements”) with various educational and non-profit institutions that provide us with the right to use FCC spectrum licenses (Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. In addition to the Agreements with educational institutions and private owners who hold the licenses, the Company also acquired direct ownership of spectrum licenses previously acquired by Sprint through government auctions or other acquisitions. The Agreements with educational and certain non-profit institutions are typically for five to 10 years with automatic renewal provisions, bringing the total term of the agreement up to 30 years. A majority of the Agreements include a right of first refusal to acquire, lease or otherwise use the license at the end of the automatic renewal periods. Leased FCC spectrum licenses are recorded as executory contracts whereby, as a result of business combination accounting, an intangible asset or liability is recorded reflecting the extent to which contractual terms are favorable or unfavorable to current market rates. These intangible assets or liabilities are amortized over the estimated remaining useful life of the lease agreements. Contractual lease payments are recognized on a straight-line basis over the remaining term of the arrangement, including renewals, and are presented in Costs of services within our Consolidated Statements of Comprehensive Income. The Agreements enhance the overall value of the Company’s owned spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This value is derived from the ability to provide wireless service to customers across large geographic areas and maintain the same or similar wireless connectivity quality. This enhanced value from combining owned and leased spectrum licenses is referred to as an aggregation premium. The aggregation premium is a component of the overall fair value of our owned FCC spectrum licenses, which are recorded as indefinite-lived intangible assets. Impairment We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired. When assessing goodwill for impairment, we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the two reporting units, wireless and Layer3, is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying 71 Index for Notes to the Consolidated Financial Statements amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach based on discounted cash flows associated with the intangible asset, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions. Restricted Cash Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash and are included within Other assets in our Consolidated Balance Sheets. Guarantee Liabilities We offer a device trade-in program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. Upon enrollment, participating customers must finance the purchase of a device on an EIP and have a qualifying T-Mobile monthly wireless service plan. Upon a qualifying JUMP! program upgrade, the customer’s remaining EIP balance is settled provided they trade-in their eligible used device in good working condition and purchase a new device from us on a new EIP. For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee. The guarantee liability is valued based on various economic and customer behavioral assumptions, which requires judgment, including estimating the customer's remaining EIP balance at trade-in, the expected fair value of the used device at trade-in, and the probability and timing of trade-in. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. All assumptions are reviewed periodically. Fair Value Measurements We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows: Level 1 Quoted prices in active markets for identical assets or liabilities; Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of assets and liabilities being measured within the fair value hierarchy. The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities and borrowings under our vendor financing arrangements approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate. With the exception of certain long-term fixed-rate debt, there were no financial instruments with a carrying value materially different from their fair value. See Note 7 - Fair Value Measurements for a comparison of the carrying values and fair values of our short-term and long-term debt. 72 Index for Notes to the Consolidated Financial Statements Derivative Financial Instruments Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value. We do not use derivatives for trading or speculative purposes. For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense in the same period the hedged transaction affects earnings, generally over the life of the related debt. Unrealized gains on derivatives designated in qualifying cash flow hedge relationships are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. Revenue Recognition (Effective January 1, 2018) We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. Our contracts with customers may involve multiple performance obligations, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price. Significant Judgments The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items: • Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses” above, for additional discussion on how we assess credit risk. • Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment. • The identification of distinct performance obligations within our service plans may require significant judgment. • Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment. • Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the expected value method as there are a large number of contracts with similar characteristics and the outcome of each contract is independent of the others. Historical return rate experience is a significant input to our expected value methodology. • Sales of equipment to indirect dealers who have been identified as our customer (referred to as the sell-in model) often include credits subsequently paid to the dealer as a reimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer, the dealer) are accounted for as variable consideration when estimating the amount of revenue to recognize from the sales of equipment to indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity. • The determination of the standalone selling price for contracts that involve more than one performance obligation may require significant judgment, such as when the selling price of a good or service is not readily observable. Wireless Services Revenue We generate our wireless services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing premium services to customers, such as device insurance services. Service contracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we 73 Index for Notes to the Consolidated Financial Statements satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered. Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers, in which case the payment is treated as a purchase of that distinct good or service. Federal Universal Service Fund (“USF”) and other fees are assessed by various governmental authorities in connection with the services we provide to our customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues in our Consolidated Statements of Comprehensive Income. For the years ended December 31, 2020, 2019 and 2018, we recorded approximately $ 267 million, $ 93 million and $ 161 million, respectively, of USF fees on a gross basis. We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes). Wireline Revenue Performance obligations related to our Wireline customers include the provision of domestic and international data communications services, generally to complement business wireless customers. Wireline revenues are included within Roaming and other service revenues in our Consolidated Statements of Comprehensive Income. Equipment Revenues We generate equipment revenues from the sale or lease of mobile communication devices and accessories. For performance obligations related to equipment contracts, we typically transfer control at a point in time when the device or accessory is delivered to, and accepted by, the customer or dealer. We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk. We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient to not recognize the effects of a significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less. In addition, for customers who enroll in our JUMP! program, we recognize a liability based on the estimated fair value of the specified-price trade-in right guarantee. The fair value of the guarantee is deducted from the transaction price and the remaining transaction price is allocated to other elements of the contract, including service and equipment performance obligations. See “Guarantee Liabilities” above for further information. JUMP! On Demand allows customers to lease a device over a period of up to 18 months and upgrade it for a new device up to one time per month. To date, substantially all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. Lease revenues on contracts not probable of collection are limited to the amount of payments received. See “Property and Equipment” above for further information. Advertising and Search Revenues Effective April 1, 2020, certain of our advertising and search revenues are now presented within Roaming and other service revenues, resulting in a reclassification of $ 506 million and $ 449 million for the years ended December 31, 2019 and 2018, 74 Index for Notes to the Consolidated Financial Statements respectively. These revenues were previously presented within Other revenues in our Consolidated Statements of Comprehensive Income. Prior periods have been reclassified to conform to current period presentation. Imputed Interest on EIP Receivables We record the effects of financing on all EIP loans regardless of whether or not the financing is considered to be significant. The imputation of interest results in a discount of the EIP receivable, thereby adjusting the transaction price of the contract with the customer, which is then allocated to the performance obligations of the arrangement. For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses” above, for additional discussion on how we assess credit risk. For indirect channel loans to the end service customer in which the sale of the device was to the dealer (sell-in basis), the effect of imputing interest is recognized as a reduction to service revenue, the only performance obligation with the service customer as the device sale was recognized when transferred to the dealer, over the service contract period. Our policies for imputed interest on EIP receivables are applied to loans originated for Sprint and Boost (up to the sale of the Prepaid Business to DISH on July 1, 2020) customers subsequent to Merger close. Contract Balances Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores. For contracts that involve more than one product or service that are identified as separate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers. A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the identifiable performance obligations. Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue in our Consolidated Balance Sheets. Contract Modifications Our service contracts allow customers to frequently modify their contracts without incurring penalties, in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications. Contract Costs We incur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. We capitalize postpaid sales commissions for service activation as costs to acquire a contract and amortize them over the estimated period of benefit, currently 24 months. For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require significant judgment. Prepaid commissions are expensed as incurred as their estimated period of benefit does not extend beyond 12 months. Commissions 75 Index for Notes to the Consolidated Financial Statements paid upon device upgrade are not capitalized if the remaining customer contract is less than one year. Commissions paid when the customer has a lease are treated as initial direct costs and recognized over the lease term. Our policies for the capitalization and amortization of costs to acquire a contract are applied to the Sprint, Boost (up to the sale of the Prepaid Business to Dish on July 1, 2020) and Assurance Wireless brands subsequent to the Merger close. Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer. Brightstar Distribution We had arrangements with Brightstar US, Inc. (“Brightstar”), a subsidiary of SoftBank, whereby Brightstar provided supply chain and inventory management services to us in our indirect channels. T-Mobile sold devices through Brightstar to T-Mobile indirect channels who then sold the device to an end customer. The supply chain and inventory management arrangement included, among other things, that Brightstar may purchase inventory from the original equipment manufacturers to sell through to our indirect channels. As compensation for these services, we remitted per unit fees to Brightstar for each device sold to these indirect dealers. Devices sold from T-Mobile to Brightstar do not meet the criteria for a sale. Devices transferred from T-Mobile to Brightstar remain in inventory until control is transferred upon the sale of the device to the end customer, and in some circumstances to the indirect dealer. For customers who choose to lease a device previously sold to the indirect dealer, T-Mobile will repurchase the device from the indirect dealer and originate a lease directly with the end customer. Repurchase activity from the indirect dealer is estimated and treated as a right of return, reducing equipment revenue at the time of sale to the indirect dealer. Upon lease to the end customer, T-Mobile recognizes lease revenue over the associated lease term within Equipment revenues in our Consolidated Statements of Comprehensive Income. By December 31, 2020, we had terminated or restructured most of our arrangements with Brightstar, except for reverse logistics and trade-in services. Leases (effective January 1, 2019) Cell Site, Retail Store and Office Facility Leases We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities with contractual terms that generally extend through 2035. Additionally, we lease dark fiber through non-cancelable operating leases with contractual terms that generally extend through 2041. The majority of cell site leases have a non-cancelable term of five to 15 years with several renewal options that can extend the lease term from five to 35 years. Some of these leases have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. The right-of-use asset for an operating lease is based on the lease liability. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain. In addition, we have financing leases for certain network equipment that generally have a non-cancelable lease term of two to five years . The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease. We recognize a right-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. The right-of-use asset for a finance lease is based on the lease liability. Lease expense for our financing leases is comprised of the amortization of the right-of-use asset and interest expense recognized based on the effective interest method. We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our nationwide network, technological advances within the telecommunications industry and the availability of alternative sites. We have concluded it is not reasonably certain that we would exercise the options to extend or terminate our leases. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured 76 Index for Notes to the Consolidated Financial Statements rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment. Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements where we are the lessee. For arrangements in which we are the lessor of wireless devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption; as such, leases with terms shorter than 12-months are included as a right-of-use asset and lease liability. Rental revenues and expenses associated with co-location tower sites are presented on a net basis under Topic 842. These revenues and expenses were presented on a gross basis under Topic 840. See Note 17 - Leases for further information. See Note 1 - Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 201 8 , for additional discussion regarding the accounting policies that governed leases prior to January 1, 2019. Cell Tower Monetization Transactions In 2012, we entered into a prepaid master lease in which we as the lessor provided the rights to utilize tower sites and we leased back space on certain of those towers. Prior to the Merger, Sprint entered into a similar lease-out and leaseback arrangement which we assumed in the Merger. These arrangements are treated as failed sale leasebacks in which the proceeds received are reported as a financing obligation. The principal payments on the tower obligations are included in Other, net within Net cash provided by (used in) financing activities in our Consolidated Statements of Cash Flows. Our historical tower site asset costs are reported in Property and equipment, net in our Consolidated Balance Sheets and are depreciated. See Note 9 - Tower Obligations for further information. Sprint Retirement Pension Plan Through the Merger, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing postretirement benefits to certain employees. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for participants. The investments in the Pension Plan are measured at fair value on a recurring basis each quarter using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term. See Note 11 - Employee Compensation and Benefit Plans for further information on the Pension Plan. Advertising Expense We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2020, 2019 and 2018, advertising expenses included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income were $ 1.8 billion, $ 1.6 billion and $ 1.7 billion, respectively. Income Taxes Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available. We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We 77 Index for Notes to the Consolidated Financial Statements assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. Other Comprehensive Income (Loss) Other comprehensive income (loss) consists of adjustments, net of tax, related to unrealized gains (losses) on cash flow hedges, available-for-sale securities, foreign currency translation and pension and other postretirement benefits. This is reported in Accumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings. Stock-Based Compensation Stock-based compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant. Earnings Per Share Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method. See Note 1 6 - Earnings Per Share for further information. Variable Interest Entities VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors that do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPEs’ assets by creditors of other entities, including the creditors of the seller of the assets, these SPEs are commonly referred to as being bankruptcy remote. The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated. See Note 4 - Sales of Certain Receivables and Note 9 - Tower Obligations for further information. In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. Device Purchases Cash Flow Presentation We classify all device purchases, whether acquired for sale or lease, as operating cash outflows as our predominant strategy is to sell devices to customers rather than lease them. See Note 20 – Additional Financial Information for disclosures of Leased devices transferred from inventory to property and equipment and Returned leased devices transferred from property and equipment to inventory. 78 Index for Notes to the Consolidated Financial Statements Accounting Pronouncements Adopted During the Current Year Receivables and Expected Credit Losses In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new credit loss standard became effective for us, and we adopted the standard, on January 1, 2020. The new credit loss standard required a cumulative-effect adjustment to Accumulated deficit at the date of initial application, and as a result, we did not restate prior periods presented in the consolidated financial statements. Under the new credit loss standard, we recognize lifetime expected credit losses at the inception of our credit risk exposures, whereas we previously recognized credit losses only when it was probable that they had been incurred. We also recognize expected credit losses on our EIP receivables, which are inclusive of all installment receivables acquired in the Merger or issued thereafter, separately from, and in addition to, any unamortized discount on those receivables. Prior to the adoption of the new credit loss standard, we had offset our estimate of probable losses on our EIP receivables by the amount of the related unamortized discounts on those receivables. We have developed an expected credit loss model incorporating forward-looking loss indicators. The cumulative effect of initially applying the new credit loss standard on our receivables portfolio on January 1, 2020 was an increase to our allowance for credit losses of $ 91 million, a decrease to our net deferred tax liabilities of $ 24 million and an increase to our Accumulated deficit of $ 67 million. For EIP receivables acquired in the Merger, we also recognize expected credit losses separately from, and in addition to, the acquisition date fair value of the acquired EIP receivables. Cloud Computing Arrangements In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard also requires the presentation of the amortization of the capitalized implementation costs in the same line item in the Consolidated Statements of Comprehensive Income as the fees associated with the hosting arrangement. The standard became effective for us, and we adopted the standard, on January 1, 2020. We adopted the standard on a prospective basis applying it to implementation costs incurred subsequent to January 1, 2020 and, as a result, did not restate the prior periods presented in the consolidated financial statements. The adoption of the standard did not have a material impact on our consolidated financial statements for the year ended December 31, 2020. Income Taxes In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The standard removes certain exceptions to the general principles in Topic 740. We early adopted the standard on January 1, 2020 and have applied the standard retrospectively to all periods presented. The adoption of this standard did not have a material impact on our consolidated financial statements for the year ended December 31, 2020. Guarantor Financial Information On March 2, 2020, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as well as for affiliates whose securities collateralize a registrant’s securities. The amendments revise Rules 3-10 and 3-16 of Regulation S-X, and relocate part of Rule 3-10 and all of Rule 3-16 to the new Article 13 in Regulation S-X, which is comprised of new Rules 13-01 and 13-02. We early adopted the requirements of the amendments on January 1, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) and no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, or a reconciliation to the consolidated results. 79 Index for Notes to the Consolidated Financial Statements Regulation S-K Modernization Amendments On August 26, 2020, the SEC adopted amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. The amendments are intended to elicit improved disclosures for investors and add efficiencies to the compliance efforts of registrants. The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of unnecessary information. The amendments became effective for us, and we adopted the amendments on November 9, 2020, which included making certain updates to our description of business and risk factor disclosures within our Form 10-K for the year ended December 31, 2020. Accounting Pronouncements Not Yet Adopted Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The standard is available for adoption for a limited time through December 31, 2022. We are currently evaluating the impact this standard will have, including optional expedients, on our consolidated financial statements. Management’s Discussion and Analysis, Selected Financial Data and Supplementary Information Amendments On January 11, 2021, the SEC adopted amendments to eliminate the requirement for Selected Financial Data, streamline the requirement to disclose Supplementary Financial Information and amend Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”). These amendments are intended to eliminate duplicative disclosures and modernize and enhance MD&A for the benefit of investors, while simplifying compliance efforts for registrants. The amendments became effective on February 10, 2021. We are currently evaluating the impact these amendments will have on our consolidated financial statements. We will apply the amendments, as applicable, to relevant filings made with the SEC subsequent to this Form 10-K. Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not have, or are not expected to have, a significant impact on our present or future consolidated financial statements. Note 2 – Business Combination Business Combination Agreement and Amendments On April 29, 2018, we entered into a Business Combination Agreement for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank Group Corp. (“SoftBank”) would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications. On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint stockholders other than SoftBank received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock. The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The 80 Index for Notes to the Consolidated Financial Statements issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $ 150.00 , at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued. Closing of Sprint Merger On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. Sprint was the fourth-largest telecommunications company in the U.S. offering a comprehensive range of wireless and wireline communication products and services. As a combined company, we expect to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless, video and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations. We combined the Sprint and T-Mobile operations under the T-Mobile brand nationwide on August 2, 2020. Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $ 31.3 billion. Additional components of consideration included the repayment of certain of Sprint’s debt, replacement equity awards attributable to pre-combination services, contingent consideration and a cash payment received for certain reimbursed Merger expenses. Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6 % and 24.7 %, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7 % of the outstanding T-Mobile common stock held by other stockholders. Consideration Transferred The acquisition-date fair value of consideration transferred in the Merger totaled $ 40.8 billion, comprised of the following: (in millions) April 1, 2020 Fair value of T-Mobile common stock issued to Sprint stockholders (1) $ 31,328 Fair value of T-Mobile replacement equity awards attributable to pre-combination service (2) 323 Repayment of Sprint’s debt (including accrued interest and prepayment penalties) (3) 7,396 Value of contingent consideration (4) 1,882 Payment received from selling stockholder (5) ( 102 ) Total consideration exchanged $ 40,827 (1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of Sprint common stock issued and outstanding as of March 31, 2020, an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $ 83.90 , as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020. (2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units. (3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties. (4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement. (5) Represents receipt of a cash payment from SoftBank for certain expenses associated with the Merger and is presented in Cash paid for acquisition of companies, net of cash acquired within our Consolidated Statements of Cash Flows. The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $ 1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model, whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820. The key 81 Index for Notes to the Consolidated Financial Statements assumptions in applying the income approach include estimated future share-price volatility, which was based on historical market trends and estimated future performance of T-Mobile. The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $ 7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $ 150.00 . The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement. Fair Value of Assets Acquired and Liabilities Assumed We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their estimated fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the estimated fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions. The following table summarizes the estimated fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities. As of December 31, 2020, the valuation of assets acquired and liabilities assumed is substantially complete except for the finalization of certain aspects of spectrum valuation, the valuation of certain income tax matters and loss contingencies. (in millions) April 1, 2020 Cash and cash equivalents $ 2,084 Accounts receivable 1,781 Equipment installment plan receivables 1,088 Inventory 658 Prepaid expenses 140 Assets held for sale 1,908 Other current assets 631 Property and equipment 18,435 Operating lease right-of-use assets 6,583 Financing lease right-of-use assets 291 Goodwill 9,401 Spectrum licenses 45,400 Other intangible assets 6,325 Equipment installment plan receivables due after one year, net 247 Other assets (1) 540 Total assets acquired 95,512 Accounts payable and accrued liabilities 4,944 Short-term debt 2,760 Deferred revenue 508 Short-term operating lease liabilities 1,818 Short-term financing lease liabilities 8 Liabilities held for sale 475 Other current liabilities 671 Long-term debt 29,037 Tower obligations 950 Deferred tax liabilities 3,513 Operating lease liabilities 5,615 Financing lease liabilities 12 Other long-term liabilities 4,374 Total liabilities assumed 54,685 Total consideration transferred $ 40,827 (1) Included in Other assets acquired is $ 80 million in restricted cash. 82 Index for Notes to the Consolidated Financial Statements Amounts previously disclosed for the estimated values of certain acquired assets and liabilities assumed have been revised based on additional information arising subsequent to the initial valuation. Significant Measurement Period Adjustments During the year ended December 31, 2020, we recognized measurement period adjustments to reflect facts and circumstances in existence as of the date of the Merger. These adjustments included: • An increase of $ 1.2 billion in Property and equipment related to the finalization of valuations related to certain tower assets and an increase of $ 1.7 billion in Other long-term liabilities associated with contract terms that are unfavorable to market terms. See Note 9 – Tower Obligations for further information; and • A decrease of $ 690 million in Deferred tax liabilities resulting from a $ 357 million reclassification from deferred tax liabilities to current liabilities and the continued assessment of valuation allowance necessary as of the date of the Merger along with tax effecting measurement period adjustments. See Note 13 - Income Taxes for further information. The measurement period adjustments did not have a significant impact on our Consolidated Statement of Comprehensive Income for the year ended December 31, 2020. The net impact of the measurement period adjustments resulted in a net increase to goodwill. Intangible Assets and Liabilities Goodwill with a provisionally assigned value of $ 9.4 billion represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed. The preliminary goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit. Other intangible assets include $ 4.9 billion of customer relationships with a weighted-average useful life of eight years and tradenames of $ 207 million with a useful life of two years . Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were assigned preliminary fair values of $ 790 million and $ 197 million, respectively, with 18 year and 19 year weighted average useful lives, respectively. The preliminary fair value of Spectrum licenses of $ 45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include the discount rate, market share, estimated capital and operating expenditures, forecasted service revenue and long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network. Acquired Receivables The fair value of the assets acquired include Accounts receivable of $ 1.8 billion and EIP receivables of $ 1.3 billion. The unpaid principal balance under these contracts as of the Merger date was $ 1.8 billion and $ 1.6 billion, respectively. The difference between the fair value and the unpaid principal balance primarily represents amounts expected to be uncollectible. Indemnification Assets and Contingent Liabilities Pursuant to Amendment No 2. to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of December 31, 2020, we have recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters that have not been resolved. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our Consolidated Balance Sheets. In November 2020, we entered into a consent decree with the FCC to resolve certain Lifeline matters, which resulted in a payment of $ 200 million by SoftBank. We expect that any additional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank. 83 Index for Notes to the Consolidated Financial Statements Transaction Costs We recognized transaction costs of $ 201 million, $ 106 million and $ 71 million for the years ended December 31, 2020, 2019 and 2018, respectively. These costs were associated with legal and professional services and were recognized as Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. Pro Forma Information The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the years ended December 31, 2020 and 2019 include the impact of several adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. Year Ended December 31, (in millions, except per share amounts) 2020 2019 Total revenues $ 74,681 $ 70,607 Income from continuing operations 3,302 185 Income from discontinued operations, net of tax 677 1,594 Net income 3,979 1,792 Significant nonrecurring pro forma adjustments include: • Transaction costs of $ 559 million are assumed to have occurred on January 1, 2019, and are recognized as if incurred in the first quarter of 2019; • The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax; • Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed; • Tangible and intangible assets are assumed to be recorded at their estimated fair values as of the pro forma close date of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and • Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, Brightstar distribution, amortization of costs to acquire a contract and certain tower lease transactions as described in Note 1 - Summary of Significant Accounting Policies and Note 9 - Tower Obligations . The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations. For the periods subsequent to the Merger close date, the acquired Sprint subsidiaries contributed total revenues and operating income of $ 20.5 billion and $ 1.3 billion, respectively, for the year ended December 31, 2020, that were included in our Consolidated Statements of Comprehensive Income. Financing In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). On April 1, 2020, in connection with the closing of the Merger, we drew down on our $ 19.0 billion New Secured Bridge Loan Facility and our $ 4.0 billion New Secured Term Loan Facility (each as defined below). We used the net proceeds from the drawdown of the secured facilities to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing general corporate purposes of the combined company. See Note 8 – Debt for further information. 84 Index for Notes to the Consolidated Financial Statements In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions. On April 1, 2020, in connection with the closing of the Merger, we paid $ 355 million in Commitment Letter fees to certain financial institutions. See Note 8 – Debt for further information. In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018 (the “Financing Matters Agreement”), pursuant to which DT agreed, among other things, to consent to, subject to certain conditions, amendments to certain existing debt owed to DT, in connection with the Merger. On April 1, 2020, in connection with the closing of the Merger, we made a payment for requisite consents to DT of $ 13 million. See Note 8 – Debt for further information. On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018 (the “Consent Solicitation Statement”), we obtained consents necessary to effect amendments to certain existing debt of us and our subsidiaries. On April 1, 2020, in connection with the closing of the Merger, we made payments for requisite consents to third-party note holders of $ 95 million. See Note 8 – Debt for further information. Regulatory Matters The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 1 8 - Commitments and Contingencies for further information. Prepaid Transaction On July 26, 2019, we entered into the Asset Purchase Agreement with Sprint and DISH, pursuant to which, following the consummation of the Merger, DISH would acquire the Prepaid Business. On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment to the Asset Purchase Agreement. Pursuant to the First Amendment of the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction in accordance with the Asset Purchase Agreement on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Consent Decree. On July 1, 2020, pursuant to the Asset Purchase Agreement, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $ 1.4 billion from DISH for the Prepaid Business, subject to working capital adjustments. See Note 12 - Discontinued Operations for further information. Shenandoah Personal Communications Company Affiliate Relationship Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shenandoah Personal Communications Company LLC (“Shentel”), pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our direct subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. The exercise of this option triggered a requirement for the parties to engage three independent valuation providers (the “Valuation Providers”) to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and valuation process prescribed in the Management Agreement. Subsequent to December 31, 2020, on February 1, 2021, in accordance with the Management Agreement and other agreed-upon terms, the Valuation Providers determined and calculated the Entire Business Value of Shentel’s wireless telecommunication assets used to provide services pursuant to the Management Agreement to be $ 2.1 billion, and correspondingly, the base purchase price for such wireless telecommunication assets shall be ninety percent ( 90 %) of that Entire Business Value amount ($ 1.9 billion), subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase of Shentel’s wireless telecommunication assets and expect the transaction to close in the second quarter of 2021 after satisfying customary conditions to closing. 85 Index for Notes to the Consolidated Financial Statements Note 3 – Receivables and Expected Credit Losses Our portfolio of receivables is comprised of two portfolio segments: accounts receivable and EIP receivables. Accounts Receivable Portfolio Segment Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, device insurance administrators, wholesale partners, third-party retail channels and other carriers. We estimate expected credit losses associated with our accounts receivable portfolio using an aging schedule methodology that utilizes historical information and current conditions to develop expected credit losses by aging bucket, including for receivables that are not past due. To determine the appropriate credit loss percentages by aging bucket, we consider a number of factors, including our overall historical credit losses, net of recoveries and timely payment experience as well as current collection trends such as write-off frequency and severity, credit quality of the customer base, and other qualitative factors such as macro-economic conditions, including the expected economic impacts of the Pandemic. We consider the need to adjust our estimate of expected credit losses for reasonable and supportable forecasts of future economic conditions. To do so, we monitor professional forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other economic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics. EIP Receivables Portfolio Segment Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit. To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics. Installment loans acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. Our proprietary credit scoring model is applied to all EIP arrangements originated after the Merger close date. The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: (in millions) December 31, 2020 December 31, 2019 EIP receivables, gross (1) $ 6,213 $ 4,582 Unamortized imputed discount ( 325 ) ( 299 ) EIP receivables, net of unamortized imputed discount 5,888 4,283 Allowance for credit losses (2) ( 280 ) ( 100 ) EIP receivables, net of allowance for credit losses and imputed discount $ 5,608 $ 4,183 Classified on the balance sheet as: Equipment installment plan receivables, net of allowance for credit losses and imputed discount $ 3,577 $ 2,600 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount 2,031 1,583 EIP receivables, net of allowance for credit losses and imputed discount $ 5,608 $ 4,183 (1) Through the Merger, we acquired EIP receivables with a fair value of $ 1.3 billion as of April 1, 2020. As they were recorded at fair value, an imputed discount was not recognized on the acquired receivables. (2) Allowance for credit losses as of December 31, 2020 was impacted by the cumulative effect of initially applying the new credit loss standard on our receivables portfolio on January 1, 2020, which resulted in an increase to our allowance for credit losses of $ 91 million. We manage our EIP receivables portfolio using delinquency and customer credit class as key credit quality indicators. As a part of the adoption of the new credit loss standard, we now disclose our EIP receivables portfolio disaggregated by origination year. EIP receivables acquired through the Merger are also presented by origination year. The following table presents the 86 Index for Notes to the Consolidated Financial Statements amortized cost of our EIP receivables by delinquency status, customer credit class, and year of origination as of December 31, 2020. Originated in 2020 Originated in 2019 Originated prior to 2019 Total EIP Receivables, net of unamortized imputed discounts (in millions) Prime Subprime Prime Subprime Prime Subprime Prime Subprime Grand total Current - 30 days past due $ 2,654 $ 2,035 $ 528 $ 407 $ 124 $ 26 $ 3,306 $ 2,468 $ 5,774 31 - 60 days past due 16 30 6 12 1 — 23 42 65 61 - 90 days past due 4 13 2 5 — — 6 18 24 More than 90 days past due 3 11 2 6 1 2 6 19 25 EIP receivables, net of unamortized imputed discount $ 2,677 $ 2,089 $ 538 $ 430 $ 126 $ 28 $ 3,341 $ 2,547 $ 5,888 We estimate expected credit losses on our EIP receivables by using historical data adjusted for current conditions to calculate default probabilities for our outstanding EIP loans. We consider various risk characteristics when calculating default probabilities, such as how long such loans have been outstanding, customer credit ratings, customer tenure, delinquency status and other correlated variables identified through statistical analyses. We multiply these estimated default probabilities by our estimated loss given default, which considers recoveries. As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of expected losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring of external professional forecasts and periodic internal statistical analyses, including the expected economic impacts of the Pandemic. For EIP receivables acquired in the Merger, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is accreted to interest income over the contractual life of the loan using the effective interest method. EIP receivables had a combined weighted average effective interest rate of 6.7 % and 8.8 % as of December 31, 2020 and 2019, respectively. Activity for the years ended December 31, 2020, 2019 and 2018 in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: December 31, 2020 December 31, 2019 December 31, 2018 (in millions) Accounts Receivable Allowance EIP Receivables Allowance Total Accounts Receivable Allowance EIP Receivables Allowance Total Accounts Receivable Allowance EIP Receivables Allowance Total Allowance for credit losses and imputed discount, beginning of period $ 61 $ 399 $ 460 $ 67 $ 449 $ 516 $ 86 $ 396 $ 482 Beginning balance adjustment due to implementation of the new credit loss standard — 91 91 — — — — — — Bad debt expense 338 264 602 77 230 307 69 228 297 Write-offs, net of recoveries ( 205 ) ( 175 ) ( 380 ) ( 83 ) ( 249 ) ( 332 ) ( 88 ) ( 240 ) ( 328 ) Change in imputed discount on short-term and long-term EIP receivables N/A 171 171 N/A 136 136 N/A 250 250 Impact on the imputed discount from sales of EIP receivables N/A ( 145 ) ( 145 ) N/A ( 167 ) ( 167 ) N/A ( 185 ) ( 185 ) Allowance for credit losses and imputed discount, end of period $ 194 $ 605 $ 799 $ 61 $ 399 $ 460 $ 67 $ 449 $ 516 Off-Balance-Sheet Credit Exposures We do not have material, unmitigated off-balance-sheet credit exposures as of December 31, 2020. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets 87 Index for Notes to the Consolidated Financial Statements included in our Consolidated Balance Sheets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables for further information. Note 4 – Sales of Certain Receivables We have entered into transactions to sell certain service accounts receivable and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our consolidated financial statements, are described below. In conjunction with the Merger, the total principal amount outstanding under Sprint’s accounts receivable facility of $ 2.3 billion was repaid on April 1, 2020, and the facility was terminated. Sales of Service Accounts Receivable Overview of the Transaction In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $ 950 million, and the facility expires in March 2021. As of December 31, 2020 and 2019, the service receivable sale arrangement provided funding of $ 772 million and $ 924 million, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature. In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). The Service BRE does not qualify as a VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the service receivable sale arrangement, certain of our wholly owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties. Variable Interest Entity We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer, and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our consolidated financial statements. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Consolidated Balance Sheets that relate to our variable interest in the Service VIE: (in millions) December 31, 2020 December 31, 2019 Other current assets $ 378 $ 350 Accounts payable and accrued liabilities — 25 Other current liabilities 357 342 Sales of EIP Receivables Overview of the Transaction In 2015, we entered into an arrangement to sell certain EIP accounts receivable on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the sale arrangement is $ 1.3 billion. In February 2020, we amended the 88 Index for Notes to the Consolidated Financial Statements sale arrangement to provide for an alternative advance rate methodology for the EIP accounts receivable sold in the sale arrangement and to make certain other administrative changes. On November 2, 2020, we extended the scheduled expiration date of the EIP sale arrangement to November 18, 2021. On April 30, 2020, we agreed with the purchaser banks to update our collection policies to temporarily allow for flexibility for modifications to the accounts receivable sold that are impacted by COVID-19 and exclusion of such accounts receivable from all pool performance triggers. As of both December 31, 2020 and 2019, the EIP sale arrangement provided funding of $ 1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis. In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level of control, nor does the third-party entity qualify as a VIE. Variable Interest Entity We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our consolidated financial statements. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Consolidated Balance Sheets of the EIP BRE: (in millions) December 31, 2020 December 31, 2019 Other current assets $ 388 $ 344 Other assets 120 89 Other long-term liabilities 4 18 In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit. Sales of Receivables The transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables. We recognize the cash proceeds received upon sale in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. We recognize proceeds net of the deferred purchase price, consisting of a receivable from the purchasers that entitles us to certain collections on the receivables. We recognize the collection of the deferred purchase price in Net cash used in investing activities in our Consolidated Statements of Cash Flows as Proceeds related to beneficial interests in securitization transactions. The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. At inception, we elected to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily unobservable inputs (Level 3 inputs), including customer default rates. As of December 31, 2020 and 2019, our 89 Index for Notes to the Consolidated Financial Statements deferred purchase price related to the sales of service receivables and EIP receivables was $ 884 million and $ 781 million, respectively. The following table summarizes the impact of the sale of certain service receivables and EIP receivables in our Consolidated Balance Sheets: (in millions) December 31, 2020 December 31, 2019 Derecognized net service receivables and EIP receivables $ 2,528 $ 2,584 Other current assets 766 694 of which, deferred purchase price 764 692 Other long-term assets 120 89 of which, deferred purchase price 120 89 Accounts payable and accrued liabilities — 25 Other current liabilities 357 342 Other long-term liabilities 4 18 Net cash proceeds since inception 1,715 1,944 Of which: Change in net cash proceeds during the year-to-date period ( 229 ) 65 Net cash proceeds funded by reinvested collections 1,944 1,879 We recognized losses from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of $ 36 million, $ 130 million and $ 157 million for the years ended December 31, 2020, 2019 and 2018, respectively, in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income. Continuing Involvement Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At the direction of the purchasers of the sold receivables, we apply the same policies and procedures while servicing the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. Pursuant to the EIP sale arrangement, under certain circumstances, we are required to deposit cash or replacement EIP receivables primarily for contracts terminated by customers under our JUMP! On Demand program. In addition, we have continuing involvement with the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the sale arrangements. Our maximum exposure to loss related to the involvement with the service receivables and EIP receivables sold under the sale arrangements was $ 1.2 billion as of December 31, 2020. The maximum exposure to loss, which is a required disclosure under U.S. GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby we would not receive the deferred purchase price portion of the contractual proceeds withheld by the purchasers and would also be required to repurchase the maximum amount of receivables pursuant to the sale arrangements without consideration for any recovery. We believe the probability of these circumstances occurring is remote and the maximum exposure to loss is not an indication of our expected loss. 90 Index for Notes to the Consolidated Financial Statements Note 5 – Property and Equipment The components of property and equipment were as follows: (in millions) Useful Lives December 31, 2020 December 31, 2019 Land $ 236 $ — Buildings and equipment Up to 30 years 4,006 2,587 Wireless communications systems Up to 20 years 49,453 34,353 Leasehold improvements Up to 12 years 1,879 1,345 Capitalized software Up to 10 years 16,412 12,705 Leased wireless devices Up to 19 months 6,989 1,139 Construction in progress 4,595 2,973 Accumulated depreciation and amortization ( 42,395 ) ( 33,118 ) Property and equipment, net $ 41,175 $ 21,984 Total depreciation expense relating to property and equipment and financing lease right-of-use assets was $ 13.1 billion, $ 6.5 billion and $ 6.4 billion for the years ended December 31, 2020, 2019 and 2018, respectively. These amounts include depreciation expense related to leased wireless devices of $ 3.1 billion, $ 543 million and $ 940 million for the years ended December 31, 2020, 2019 and 2018, respectively. We capitalize interest associated with the acquisition or construction of certain property and equipment and spectrum intangible assets. We recognized capitalized interest of $ 440 million, $ 473 million and $ 362 million for the years ended December 31, 2020, 2019 and 2018, respectively. Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located. Activity in our asset retirement obligations was as follows: (in millions) Year Ended December 31, 2020 Year Ended December 31, 2019 Asset retirement obligations, beginning of year $ 659 $ 609 Fair value of liabilities acquired through Merger 1,110 — Liabilities incurred 16 35 Liabilities settled ( 40 ) ( 2 ) Accretion expense 55 32 Changes in estimated cash flows 17 ( 15 ) Asset retirement obligations, end of period $ 1,817 $ 659 Classified on the balance sheet as: Other current liabilities $ 14 $ — Other long-term liabilities 1,803 659 The corresponding assets, net of accumulated depreciation, related to asset retirement obligations were $ 912 million and $ 159 million as of December 31, 2020 and 2019, respectively. Postpaid Billing System Impairment In connection with the continuing integration of the businesses following the Merger, we evaluated the long-term billing system architecture strategy for our postpaid customers. In order to facilitate customer migration from the Sprint legacy billing platform, our postpaid billing system replacement plan and associated development will no longer serve our future needs. As a result, we recorded a non-cash impairment of $ 200 million related to capitalized software development costs for the year ended December 31, 2020, all of which relates to the impairment recognized during the three months ended June 30, 2020. The expense is included within Impairment expense in our Consolidated Statements of Comprehensive Income. There were no impairments recognized for the years ended December 31, 2019 and 2018. 91 Index for Notes to the Consolidated Financial Statements Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets Goodwill The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019, are as follows: (in millions) Goodwill Historical goodwill, net of accumulated impairment losses of $ 10,766 $ 1,901 Goodwill from acquisition in 2019 29 Balance as of December 31, 2019 1,930 Goodwill from acquisitions in 2020 9,405 Layer3 goodwill impairment ( 218 ) Balance as of December 31, 2020 $ 11,117 Accumulated impairment losses at December 31, 2020 $ ( 10,984 ) On April 1, 2020, we completed our Merger with Sprint, which was accounted for as a business combination resulting in $ 9.4 billion in goodwill. The acquired goodwill was allocated to the wireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combination for further information. Goodwill Impairment Assessment Certain non-financial assets, including goodwill and indefinite-lived intangible assets such as Spectrum licenses, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment when events or circumstances indicate that carrying value may not be recoverable, and at least annually for goodwill and indefinite-lived intangible assets. The nonrecurring measurements of the fair value of these assets, for which observable market information may be limited, are classified within Level 3 of the fair value hierarchy. In the event an impairment is required, the asset is adjusted to its estimated fair value using market-based assumptions, to the extent they are available, as well as other assumptions that may require significant judgement. For our assessment of the wireless reporting unit we employed a qualitative approach. The fair value of the wireless reporting unit is estimated using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value. No events or change in circumstances have occurred that indicate the fair value of the wireless reporting unit may be below its carrying amount at December 31, 2020. Our enhanced in-home broadband opportunity following the Merger, along with the acquisition of certain content rights, has created a strategic shift in our TVision TM services offering, allowing us the ability to develop a video product that will be complementary to the in-home broadband offering. As a result of the change in the stand-alone product offering plans and timing, we completed an interim goodwill impairment analysis for the Layer3 reporting unit and recognized a goodwill impairment of $ 218 million for the year ended December 31, 2020, all of which relates to the impairment recognized during the three months ended June 30, 2020. This impairment reduced the goodwill assigned to the Layer3 reporting unit to zero . The expense is included within Impairment expense in our Consolidated Statements of Comprehensive Income. There were no goodwill impairments recognized for the years ended December 31, 2019 and 2018. Application of the goodwill impairment test requires judgment including the determination of the fair value of the reporting unit. We employed an income approach to assess the fair value of the Layer3 reporting unit based on the present value of estimated future cash flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our business plans, expected growth rates, cost of capital and tax rates. We also made certain forecasts about future business strategies and economic conditions, market data, and other assumptions, such as estimates of subscribers for TVision TM services, average revenue and content cost per subscriber. The discount rate used was based on the weighted average cost of capital adjusted for the risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. As of December 31, 2020, Goodwill was only assigned to the wireless reporting unit as the Goodwill assigned to the Layer3 reporting unit was written-off to a zero balance during the year ended December 31, 2020. 92 Index for Notes to the Consolidated Financial Statements Intangible Assets Identifiable Intangible Assets Acquired The following table summarizes the fair value of the intangible assets acquired in the Merger: Weighted Average Useful Life (in years) Fair Value as of April 1, 2020 (in millions) Spectrum licenses Indefinite-lived $ 45,400 Tradenames (1) 2 years 207 Customer relationships 8 years 4,900 Favorable spectrum leases 18 years 790 Other intangible assets 7 years 428 Total intangible assets acquired $ 51,725 (1) Tradenames include the Sprint brand Spectrum licenses are issued for a fixed period of time, typically up to 15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets. The fair value of spectrum licenses includes the value associated with aggregating a nationwide portfolio of owned and leased spectrum. Favorable spectrum leases represent a lease contract where the market rate is higher than the future contractual lease payments. We lease this spectrum from third parties who hold the spectrum licenses. As these contracts pertain to intangible assets, they are excluded from the lease accounting guidance (ASC 842) and are accounted for as service contracts in which the expense is recognized on a straight-line basis over the lease team. Favorable spectrum leases of $ 790 million were recorded as an intangible asset as a result of purchase accounting and will be amortized on a straight-line basis over the associated remaining lease term. Additionally, we recognized unfavorable spectrum lease liabilities of $ 197 million, which are also amortized over their respective remaining lease terms and are included in Other liabilities in our Consolidated Balance Sheets. The customer relationship intangible assets represent the value associated with the acquired Sprint customers. The customer relationship intangible assets are amortized using the sum-of-the-years digits method over periods of up to eight years . Other intangible assets are amortized over the remaining period that the asset is expected to provide benefit to us. Spectrum Licenses The following table summarizes our spectrum license activity for the years ended December 31, 2020 and 2019: (in millions) 2020 2019 Spectrum licenses, beginning of year $ 36,465 $ 35,559 Spectrum license acquisitions 1,023 857 Spectrum licenses acquired in Merger 45,400 — Spectrum licenses transferred to held for sale ( 83 ) — Costs to clear spectrum 23 49 Spectrum licenses, end of year $ 82,828 $ 36,465 Spectrum Transactions In March 2020, the FCC announced that we were the winning bidder of 2,384 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands) for an aggregate price of $ 873 million, net of an incentive payment of $ 59 million. At the inception of Auction 103 in October 2019, we deposited $ 82 million with the FCC. Upon conclusion of Auction 103 in March 2020, we made a down payment of $ 93 million for the purchase price of the licenses won in the auction. On April 8, 2020, we paid the FCC the remaining $ 698 million of the purchase price for the licenses won in the auction. Prior to the Merger, the FCC announced that Sprint was the winning bidder of 127 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands). All payments related to the licenses won were made by Sprint prior to the Merger. 93 Index for Notes to the Consolidated Financial Statements In November 2020, we executed an agreement with a third party for the exchange of certain AWS spectrum licenses. Upon the execution of the agreement, the spectrum licenses were classified as assets held for sale, included within Other current assets, and measured at the lower of their carrying amount or fair value less cost to sell, which resulted in the recognition of a non-cash impairment loss of $ 35 million, included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. We received approval for the transaction from the FCC and the transaction closed in the first quarter of 2021. The licenses are included in Spectrum licenses in our Consolidated Balance Sheets as of December 31, 2020. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits, in our Consolidated Statements of Cash Flows for the year ended December 31, 2020. In April 2020, we acquired FCC licenses in the 800 MHz, 1900 MHz, and 2.5 GHz bands as part of the Merger with Sprint at an estimated fair value of approximately $ 45.4 billion. See Note 2 - Business Combination for further information. Impairment assessment For our assessment of Spectrum license impairment, we employed a qualitative approach. No events or change in circumstances have occurred that indicate the fair value of the Spectrum licenses may be below its carrying amount at December 31, 2020. Other Intangible Assets The components of Other intangible assets were as follows: Useful Lives December 31, 2020 December 31, 2019 (in millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Customer relationships Up to 8 years $ 4,900 $ ( 865 ) $ 4,035 $ 1,104 $ ( 1,104 ) $ — Tradenames and patents Up to 19 years 598 ( 412 ) 186 323 ( 258 ) 65 Favorable spectrum leases Up to 27 years 790 ( 35 ) 755 — — — Other Up to 10 years 377 ( 55 ) 322 100 ( 50 ) 50 Other intangible assets $ 6,665 $ ( 1,367 ) $ 5,298 $ 1,527 $ ( 1,412 ) $ 115 Amortization expense for intangible assets subject to amortization was $ 1.2 billion, $ 82 million and $ 124 million for the years ended December 31, 2020, 2019 and 2018, respectively. The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below: (in millions) Estimated Future Amortization Twelve Months Ending December 31, 2021 $ 1,246 2022 982 2023 827 2024 669 2025 511 Thereafter 1,063 Total $ 5,298 Substantially all of the estimated future amortization expense is associated with intangible assets acquired in the Merger. Note 7 – Fair Value Measurements The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities and borrowings under vendor financing arrangements with our primary network equipment suppliers approximate fair value due to the short-term maturities of these instruments. 94 Index for Notes to the Consolidated Financial Statements Derivative Financial Instruments Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by interest rate volatility. We do not use derivatives for trading or speculative purposes. Interest Rate Lock Derivatives In October 2018, we entered into interest rate lock derivatives with notional amounts of $ 9.6 billion. In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. For the three months ended March 31, 2020, we made net collateral transfers to certain of our derivative counterparties totaling $ 580 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. No amounts were transferred to the derivative counterparties subsequent to March 31, 2020. These collateral transfers are included in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Consolidated Statements of Cash Flows. The net collateral transfers to certain of our derivative counterparties totaled $ 632 million for the three months ended December 31, 2019, and was presented in Other current assets in our Consolidated Balance Sheets. There was no collateral receivable balance as of December 31, 2020. We record interest rate lock derivatives on our Consolidated Balance Sheets at fair value that is derived primarily from observable market data, including yield curves. Interest rate lock derivatives were classified as Level 2 in the fair value hierarchy. Cash flows associated with qualifying hedge derivative instruments are presented in the same category on the Consolidated Statements of Cash Flows as the item being hedged. The fair value of interest rate lock derivatives was a liability of $ 1.2 billion as of December 31, 2019, and was included in Other current liabilities in our Consolidated Balance Sheets. Aggregate changes in fair value, net of tax, of $ 1.6 billion and $ 868 million are presented in Accumulated other comprehensive loss as of December 31, 2020 and 2019, respectively. Between April 2 to April 6, 2020, in connection with the issuance of an aggregate of $ 19.0 billion in Senior Secured Notes bearing interest rates ranging from 3.500 % to 4.500 % and maturing in 2025 through 2050, we terminated our interest rate lock derivatives. See Note 8 - Debt for further information regarding the issuance of Senior Secured Notes. At the time of termination, the interest rate lock derivatives were a liability of $ 2.3 billion, of which $ 1.2 billion was cash-collateralized. The cash flows associated with the settlement of interest rate lock derivatives are presented on a gross basis in our Consolidated Statements of Cash Flows, with the total cash payments to settle the swaps of $ 2.3 billion presented in changes in Other current and long-term liabilities within Net cash provided by operating activities and the return of cash collateral of $ 1.2 billion presented as an inflow in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities. Upon the issuance of debt to which the hedged interest rate risk related, we began amortizing the Accumulated other comprehensive loss with the derivatives into Interest expense in a manner consistent with how the hedged interest payments affect earnings. For the year ended December 31, 2020, $ 128 million was amortized from Accumulated other comprehensive loss into Interest expense in the Consolidated Statements of Comprehensive Income. No amounts were amortized into Interest expense for the years ended December 31, 2019 and 2018. We expect to amortize $ 189 million of the Accumulated other comprehensive loss associated with the derivatives into Interest expense over the next 12 months. Deferred Purchase Price Assets In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates. See Note 4 – Sales of Certain Receivables for further information. The carrying amounts of our deferred purchase price assets, which are measured at fair value on a recurring basis and are included in our Consolidated Balance Sheets, were $ 884 million and $ 781 million at December 31, 2020 and 2019, respectively. Fair value was equal to carrying amount at December 31, 2020 and 2019. Debt The fair value of our Senior Unsecured Notes, Senior Secured Notes, and Secured Term Loan Facility to third parties was determined based on quoted market prices in active markets, and therefore were classified as Level 1 within the fair value hierarchy. The fair values of our Senior Notes to affiliates and Incremental Term Loan Facility to affiliates were determined 95 Index for Notes to the Consolidated Financial Statements based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our Senior Notes to affiliates and Incremental Term Loan Facility to affiliates were classified as Level 2 within the fair value hierarchy. Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to develop fair value estimates for the Senior Notes to affiliates and Incremental Term Loan Facility to affiliates. The fair value estimates were based on information available as of December 31, 2020 and 2019. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange. The carrying amounts and fair values of our short-term and long-term debt included in our Consolidated Balance Sheets were as follows: Level within the Fair Value Hierarchy December 31, 2020 December 31, 2019 (in millions) Carrying Amount (1) Fair Value (1) Carrying Amount (1) Fair Value (1) Liabilities: Senior Unsecured Notes to third parties 1 $ 29,966 $ 32,450 $ 10,958 $ 11,479 Senior Notes to affiliates 2 4,716 4,991 9,986 10,366 Senior Secured Notes to third parties 1 36,204 40,519 — — Incremental Term Loan Facility to affiliates 2 — — 4,000 4,000 (1) Excludes $ 240 million and $ 25 million as of December 31, 2020 and 2019, respectively, in vendor financing arrangements and other debt as the carrying values approximate fair value primarily due to the short-term maturities of these instruments. Guarantee Liabilities We offer device trade-in programs that provide eligible customers a specified-price trade-in right to upgrade their device. For customers who enroll in these programs, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee, incorporating the expected probability and timing of handset upgrade and the estimated fair value of the handset which is returned. Accordingly, our guarantee liabilities were classified as Level 3 within the fair value hierarchy. When customers upgrade their devices, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. Guarantee liabilities are included in Other current liabilities in our Consolidated Balance Sheets. The carrying amounts of our guarantee liabilities measured at fair value on a non-recurring basis included in our Consolidated Balance Sheets were $ 50 million and $ 62 million as of December 31, 2020 and 2019, respectively. The total estimated remaining gross EIP receivable balances of all enrolled handset upgrade program customers, which are the remaining EIP amounts underlying the trade-in right guarantee, including EIP receivables that have been sold, was $ 3.4 billion as of December 31, 2020. This is not an indication of our expected loss exposure as it does not consider the expected fair value of the used handset or the probability and timing of the trade-in. 96 Index for Notes to the Consolidated Financial Statements Note 8 – Debt Debt was as follows: (in millions) December 31, 2020 December 31, 2019 3.360 % Series 2016-1 A-1 Notes due 2021 $ 656 $ — 5.300 % Senior Notes to affiliates due 2021 — 2,000 7.250 % Senior Notes due 2021 2,250 — 11.500 % Senior Notes due 2021 1,000 — 4.000 % Senior Notes to affiliates due 2022 1,000 1,000 4.000 % Senior Notes due 2022 500 500 6.000 % Senior Notes due 2022 2,280 — Incremental term loan facility to affiliates due 2022 — 2,000 6.000 % Senior Notes due 2023 1,300 1,300 7.875 % Senior Notes due 2023 4,250 — 6.000 % Senior Notes due 2024 1,000 1,000 6.000 % Senior Notes to affiliates due 2024 — 1,350 6.000 % Senior Notes to affiliates due 2024 — 650 6.500 % Senior Notes due 2024 — 1,000 7.125 % Senior Notes due 2024 2,500 — Incremental term loan facility to affiliates due 2024 — 2,000 3.500 % Senior Secured Notes due 2025 3,000 — 4.738 % Series 2018-1 A-1 Notes due 2025 2,100 — 5.125 % Senior Notes to affiliates due 2025 (1) — 1,250 5.125 % Senior Notes due 2025 500 500 6.375 % Senior Notes due 2025 — 1,700 7.625 % Senior Notes due 2025 1,500 — 1.500 % Senior Secured Notes due 2026 1,000 — 6.500 % Senior Notes due 2026 2,000 2,000 4.500 % Senior Notes due 2026 1,000 1,000 4.500 % Senior Notes to affiliates due 2026 1,000 1,000 7.625 % Senior Notes due 2026 1,500 — 3.750 % Senior Secured Notes due 2027 4,000 — 5.375 % Senior Notes due 2027 500 500 5.375 % Senior Notes to affiliates due 2027 (1) 1,250 1,250 2.050 % Senior Secured Notes due 2028 1,750 — 4.750 % Senior Notes due 2028 1,500 1,500 4.750 % Senior Notes to affiliates due 2028 1,500 1,500 5.152 % Series 2018-1 A-2 Notes due 2028 1,838 — 6.875 % Senior Notes due 2028 2,475 — 3.875 % Senior Secured Notes due 2030 7,000 — 2.250 % Senior Secured Notes due 2031 1,000 — 2.550 % Senior Secured Notes due 2031 2,500 — 8.750 % Senior Notes due 2032 2,000 — 4.375 % Senior Secured Notes due 2040 2,000 — 3.000 % Senior Secured Notes due 2041 2,500 — 4.500 % Senior Secured Notes due 2050 3,000 — 3.300 % Senior Secured Notes due 2051 3,000 — 3.600 % Senior Secured Notes due 2060 1,000 — Other debt 240 25 Unamortized premium on debt to affiliates — 43 Unamortized premium on debt to third parties 2,197 — Unamortized discount on debt to affiliates ( 20 ) ( 53 ) Unamortized discount on debt to third parties ( 197 ) — Debt issuance costs and consent fees ( 244 ) ( 46 ) Total debt 71,125 24,969 Less: Current portion of Senior Notes and other debt to third parties 4,579 25 Total long-term debt $ 66,546 $ 24,944 Classified on the balance sheet as: Long-term debt $ 61,830 $ 10,958 Long-term debt to affiliates 4,716 13,986 Total long-term debt $ 66,546 $ 24,944 97 Index for Notes to the Consolidated Financial Statements (1) On April 1, 2020, in connection with the closing of the Merger, we amended the $ 1.25 billion of 5.125 % Senior Notes to affiliates due 2025 and $ 1.25 billion of 5.375 % Senior Notes to affiliates due 2027, to change the maturity date thereof to April 15, 2021 and April 15, 2022, respectively. See “Financing Matters Agreement” section below for further information. Our effective interest rate, excluding the impact of derivatives and capitalized interest, was approximately 4.6 % and 5.2 % for the years ended December 31, 2020 and 2019, respectively, on weighted average debt outstanding of $ 58.4 billion and $ 25.5 billion for the years ended December 31, 2020 and 2019, respectively. The weighted average debt outstanding was calculated by applying an average of the monthly ending balances of total short-term and long-term debt and short-term and long-term debt to affiliates, net of unamortized premiums, discounts, debt issuance costs and consent fees. Issuances and Borrowings During the year ended December 31, 2020, we issued the following Senior Secured Notes and entered into the following Secured loan facilities: (in millions) Principal Issuances Premiums, Discounts and Issuance Costs Net Proceeds from Issuance of Long-Term Debt Issue Date 3.500 % Senior Secured Notes due 2025 $ 3,000 $ 12 $ 2,988 April 9, 2020 3.750 % Senior Secured Notes due 2027 4,000 17 3,983 April 9, 2020 3.875 % Senior Secured Notes due 2030 7,000 78 6,922 April 9, 2020 4.375 % Senior Secured Notes due 2040 2,000 47 1,953 April 9, 2020 4.500 % Senior Secured Notes due 2050 3,000 24 2,976 April 9, 2020 1.500 % Senior Secured Notes due 2026 1,000 5 995 June 24, 2020 2.050 % Senior Secured Notes due 2028 1,250 8 1,242 June 24, 2020 2.550 % Senior Secured Notes due 2031 1,750 12 1,738 June 24, 2020 2.050 % Senior Secured Notes due 2028 500 ( 11 ) 511 October 6, 2020 2.550 % Senior Secured Notes due 2031 750 ( 29 ) 779 October 6, 2020 3.000 % Senior Secured Notes due 2041 1,250 15 1,235 October 6, 2020 3.300 % Senior Secured Notes due 2051 1,500 16 1,484 October 6, 2020 2.250 % Senior Secured Notes due 2031 1,000 5 995 October 28, 2020 3.000 % Senior Secured Notes due 2041 1,250 38 1,212 October 28, 2020 3.300 % Senior Secured Notes due 2051 1,500 58 1,442 October 28, 2020 3.600 % Senior Secured Notes due 2060 1,000 11 989 October 28, 2020 Total of Senior Secured Notes issued 31,750 306 31,444 Secured bridge loan facility due 2021 19,000 257 18,743 April 1, 2020 Secured term loan facility due 2027 4,000 107 3,893 April 1, 2020 Total of Secured loan facilities issued 23,000 364 22,636 Total Issuances and Borrowings $ 54,750 $ 670 $ 54,080 Credit Facilities In connection with the entry into the Business Combination Agreement, T-Mobile USA entered into the Commitment Letter, with certain financial institutions named therein that committed to provide up to $ 27.0 billion in secured debt financing through May 1, 2020, including a $ 4.0 billion secured revolving credit facility, a $ 4.0 billion secured term loan facility, and a $ 19.0 billion secured bridge loan facility. The funding of the debt facilities provided for in the Commitment Letter was subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Bridge Loan Credit Agreement with certain financial institutions named therein, providing for a $ 19.0 billion secured bridge loan facility (“New Secured Bridge Loan Facility”). The New Secured Bridge Loan Facility had an interest rate equal to a per annum rate of LIBOR plus a margin of 1.25 % and had a maturity date of March 31, 2021. On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Credit Agreement (the “New Credit Agreement”) with certain financial institutions named therein, providing for a $ 4.0 billion secured term loan facility (“New Secured Term Loan Facility”) and a $ 4.0 billion revolving credit facility (“New Revolving Credit Facility”). On September 16, 2020, we increased the aggregate commitment under the New Revolving Credit Facility to $ 5.5 billion through an amendment (the “Incremental Amendment”) to the New Credit Agreement. The New Secured Term Loan Facility had an interest rate equal to a per annum rate of LIBOR plus a margin of 3.00 % and had a maturity 98 Index for Notes to the Consolidated Financial Statements date of April 1, 2027. The New Revolving Credit Facility bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 1.25 % with the margin subject to a reduction to 1.00 % if T-Mobile’s Total First Lien Net Leverage Ratio (as defined in the New Credit Agreement) is less than or equal to 0.75 to 1.00. The commitments under the New Revolving Credit Facility mature on April 1, 2025. The New Credit Agreement contains customary representations, warranties and covenants, including a financial maintenance covenant of 3.3 x with respect to T-Mobile’s Total First Lien Net Leverage Ratio commencing with the period ending September 30, 2020. On April 1, 2020, in connection with the closing of the Merger, we drew down on our $ 19.0 billion New Secured Bridge Loan Facility and our $ 4.0 billion New Secured Term Loan Facility. We used the net proceeds of $ 22.6 billion from the drawdown of the secured facilities to repay our $ 4.0 billion Incremental Term Loan Facility with DT and to repurchase from DT $ 4.0 billion of indebtedness to affiliates, consisting of $ 2.0 billion of 5.300 % Senior Notes due 2021 and $ 2.0 billion of 6.000 % Senior Notes due 2024, as well as to redeem certain debt of Sprint and Sprint’s subsidiaries, including the secured term loans due 2024 with a total principal amount outstanding of $ 5.9 billion, accounts receivable facility with a total amount outstanding of $ 2.3 billion, and Sprint’s 7.250 % Guaranteed Notes due 2028 with a total principal amount outstanding of $ 1.0 billion, and for post-closing general corporate purposes of the combined company. In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions, including certain financing fees on the secured term loan commitment and fees for structuring, funding, and providing the commitments. On April 1, 2020, in connection with the closing of the Merger, we paid $ 355 million in Commitment Letter fees to certain financial institutions. On October 30, 2020, we entered into a $ 5.0 billion senior secured term loan commitment with certain financial institutions. Subsequent to December 31, 2020, on January 14, 2021, we issued an aggregate of $ 3.0 billion in Senior Notes. A portion of the senior secured term loan commitment was reduced by an amount equal to the aggregate gross proceeds of the Senior Notes, which reduced the commitment to $ 2.0 billion. Up to $ 2.0 billion of loans under the commitment may be drawn at any time (subject to customary conditions precedent) through June 30, 2021. If drawn, the facility matures in 364 days with one six -month extension exercisable at our discretion. Proceeds may be used for general corporate purposes and will accrue interest at a rate of LIBOR plus a margin of 1.25 % per annum. Senior Notes On April 9, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued an aggregate of $ 19.0 billion in Senior Secured Notes bearing interest rates ranging from 3.500 % to 4.500 % and maturing in 2025 through 2050, and used the net proceeds of $ 18.8 billion together with cash on hand to repay all of the outstanding amounts under, and terminate, our $ 19.0 billion New Secured Bridge Loan Facility, as described above. On June 24, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued an aggregate of $ 4.0 billion in Senior Secured Notes bearing interest rates ranging from 1.500 % to 2.550 % and maturing in 2026 through 2031. The Senior Secured Notes were issued for refinancing callable Senior Notes and, subsequent to the issuance, we redeemed certain Senior Notes as set forth below under “Senior Secured Notes – Redemptions and Repayments” and “Senior Notes to Affiliates.” On October 6, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued an aggregate of $ 4.0 billion in Senior Secured Notes bearing interest rates ranging from 2.050 % to 3.300 % and maturing in 2028 through 2051. On October 9, 2020, we used the net proceeds of $ 4.0 billion to repay at par all of the outstanding amounts under, and terminate, our New Secured Term Loan Facility. On October 28, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued an aggregate of $ 4.75 billion in Senior Secured Notes bearing interest rates ranging from 2.250 % to 3.600 % and maturing in 2031 through 2060. We intend to use the net proceeds of $ 4.6 billion for general corporate purposes, which may include among other things, acquisitions of additional spectrum and refinancing existing indebtedness on an ongoing basis. The Senior Secured Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons except in accordance with an applicable exemption from the registration requirements thereof. Accordingly, the Senior Secured Notes were offered and sold only (1) to persons reasonably believed to be “qualified institutional buyers” under Rule 144A under the Securities Act and (2) outside the United States to non-U.S. persons in reliance upon Regulation S under the Securities Act. The Senior Secured Notes are secured by a first priority security interest, subject to permitted liens, in substantially all of our present and future assets, other than certain excluded assets. They are redeemable at our discretion, in whole or in part, at any 99 Index for Notes to the Consolidated Financial Statements time. If redeemed prior to their contractually specified Par Call Date, the redemption price is subject to a make-whole premium calculated by reference to then-current U.S. Treasury rates plus a fixed spread; if redeemed on or after their respective Par Call Date, the make-whole premium does not apply. The amount of time by which the Par Call Date precedes the maturity date of the respective note varies from one to six months . We have entered into a Registration Rights Agreement that is in effect through the maturity of the applicable Senior Secured Notes. This agreement calls for us to use commercially reasonable efforts to file a registration statement and have it declared effective within a particular time period and to maintain the effectiveness of the registration statement for a certain period of time. If a default occurs, we will pay additional interest up to a maximum increase of 0.50 % per annum. We have not accrued any obligations associated with the Registration Rights Agreement as compliance with the agreements is considered probable. Subsequent to December 31, 2020, on January 14, 2021, T-Mobile USA issued $ 1.0 billion of 2.250 % Senior Notes due 2026, $ 1.0 billion of 2.625 % Senior Notes due 2029, and $ 1.0 billion of 2.875 % Senior Notes due 2031. We intend to use the net proceeds of $ 3.0 billion for general corporate purposes, which may include among other things, financing acquisitions of additional spectrum and refinancing existing indebtedness on an ongoing basis. Debt Assumed In connection with the Merger, we assumed the following indebtedness of Sprint: (in millions) Fair value as of April 1, 2020 Principal Outstanding as of December 31, 2020 Carrying Value as of December 31, 2020 7.250 % Senior Notes due 2021 $ 2,324 $ 2,250 $ 2,287 7.875 % Senior Notes due 2023 4,682 4,250 4,594 7.125 % Senior Notes due 2024 2,746 2,500 2,706 7.625 % Senior Notes due 2025 1,677 1,500 1,652 7.625 % Senior Notes due 2026 1,701 1,500 1,679 3.360 % Senior Secured Series 2016-1 A-1 Notes due 2021 (1) 1,310 656 656 4.738 % Senior Secured Series 2018-1 A-1 Notes due 2025 (1) 2,153 2,100 2,145 5.152 % Senior Secured Series 2018-1 A-2 Notes due 2028 (1) 1,960 1,838 1,950 7.000 % Senior Notes due 2020 1,510 — — 11.500 % Senior Notes due 2021 1,105 1,000 1,057 6.000 % Senior Notes due 2022 2,372 2,280 2,346 6.875 % Senior Notes due 2028 2,834 2,475 2,808 8.750 % Senior Notes due 2032 2,649 2,000 2,620 Accounts receivable facility 2,310 — — Other debt 464 256 240 Total Debt Assumed $ 31,797 $ 24,605 $ 26,740 (1) In connection with the closing of the Merger, we assumed Sprint’s spectrum-backed notes, which are collateralized by the acquired directly held and third-party leased Spectrum licenses. See “Spectrum Financing” section below for further information. 100 Index for Notes to the Consolidated Financial Statements Redemptions and Repayments During the year ended December 31, 2020, we repaid the following loan facilities and redeemed the following Senior Notes held by third parties and Senior Notes held by affiliates: (in millions) Principal Amount Write-off of Premiums, Discounts and Issuance Costs (1) Other (2) Redemption or Repayment Date Redemption Price 6.500 % Senior Notes due 2024 $ 1,000 $ 12 $ 22 July 4, 2020 102.167 % 7.000 % Senior Notes due 2020 1,500 — — August 15, 2020 N/A 6.375 % Senior Notes due 2025 1,700 24 36 September 1, 2020 102.125 % Total Senior Notes to third parties redeemed 4,200 36 58 5.300 % Senior Notes to affiliates due 2021 (3) 2,000 — — April 1, 2020 100.000 % 6.000 % Senior Notes to affiliates due 2024 (3) 1,350 ( 26 ) — April 1, 2020 100.000 % 6.000 % Senior Notes to affiliates due 2024 (3) 650 ( 15 ) — April 1, 2020 100.000 % 5.125 % Senior Secured Notes to affiliates due 2025 1,250 15 — July 4, 2020 100.000 % Total Senior Notes to affiliates redeemed 5,250 ( 26 ) — Total Redemptions $ 9,450 $ 10 $ 58 Incremental term loan facility to affiliates due 2022 $ 2,000 $ — $ — April 1, 2020 100.000 % Incremental term loan facility to affiliates due 2024 2,000 — — April 1, 2020 100.000 % Accounts receivable facility 2,310 — — April 1, 2020 100.000 % Secured bridge loan facility due 2021 19,000 251 ( 47 ) April 9, 2020 100.128 % 3.360 % Senior Secured Series 2016-1 A-1 Notes due 2021 656 — — Various N/A Secured term loan facility due 2027 4,000 100 — October 9, 2020 100.000 % Other debt 481 — — Various N/A Total Repayments $ 30,447 $ 351 $ ( 47 ) (1) Write-off of premiums, discounts and issuance costs are included in Other expense, net in our Consolidated Statements of Comprehensive Income. Write-off of issuance costs are included in Loss on redemption of debt within Net cash provided by operating activities in our Consolidated Statements of Cash Flows. (2) Primarily represents a reimbursement of a portion of the commitment letter fees that were paid to financial institutions when we drew down on the Secured Bridge Loan Facility on April 1, 2020 and is included in Other expense, net in our Consolidated Statements of Comprehensive Income. (3) Pursuant to the Financing Matters Agreement, the Senior Notes were effectively redeemed through a repurchase and were cancelled and retired in full on April 1, 2020. On April 9, 2020, we repaid all of the outstanding amounts under, and terminated, our $ 19.0 billion New Secured Bridge Loan Facility. Additionally, in connection with the repayment of our New Secured Bridge Loan Facility, we received a reimbursement of $ 71 million, which represents a portion of the Commitment Letter fees that were paid to certain financial institutions when we drew down on the New Secured Bridge Loan Facility on April 1, 2020. The reimbursement is presented in Other expense, net in our Consolidated Statements of Comprehensive Income. On July 4, 2020, we redeemed $ 1.0 billion aggregate principal amount of our 6.500 % Senior Notes due 2024. The notes were redeemed at a redemption price equal to 102.167 % of the principal amount of the notes (plus accrued and unpaid interest thereon), and were paid on July 6, 2020. The redemption premium was approximately $ 22 million and the write off of issuance costs and consent fees was approximately $ 12 million, which were included in Other expense, net in our Consolidated Statements of Comprehensive Income and Losses on redemption of debt in our Consolidated Statements of Cash Flows. On July 4, 2020, we also redeemed $ 1.25 billion aggregate principal amount of our 5.125 % Senior Notes to affiliates due 2021, as further described below under “Senior Notes to Affiliates.” On August 15, 2020, we redeemed at maturity $ 1.5 billion aggregate principal amount of our 7.000 % Senior Notes due 2020 (plus accrued and unpaid interest thereon). On September 1, 2020, we redeemed $ 1.7 billion aggregate principal amount of our 6.375 % Senior Notes due 2025. The notes were redeemed at a redemption price equal to 102.125 % of the principal amount of the notes (plus accrued and unpaid interest thereon), and were paid on September 1, 2020. The redemption premium was approximately $ 36 million and the write off of 101 Index for Notes to the Consolidated Financial Statements issuance costs and consent fees was approximately $ 24 million, which were included in Other expense, net in our Consolidated Statements of Comprehensive Income. On October 9, 2020, we repaid at par all of the outstanding amounts under, and terminated, our New Secured Term Loan Facility. The write off of discounts and issuance costs was approximately $ 100 million, which were included in Other expense, net in our Consolidated Statements of Comprehensive Income. Financing Matters Agreement Pursuant to the Financing Matters Agreement, DT agreed, among other things, to consent to the incurrence by T-Mobile USA of secured debt in connection with and after the consummation of the Merger, and to provide a lock up on sales thereby as to certain Senior Notes of T-Mobile USA held thereby. In connection with receiving the requisite consents, we made upfront payments to DT of $ 7 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt to affiliates in our Consolidated Balance Sheets. On April 1, 2020, in connection with the closing of the Merger, we: • Repaid our $ 4.0 billion Incremental Term Loan Facility with DT, consisting of a $ 2.0 billion Incremental Term Loan Facility due 2022 and a $ 2.0 billion Incremental Term Loan Facility due 2024; • Terminated our revolving credit facility; • Repurchased from DT $ 4.0 billion of indebtedness to affiliates, consisting of $ 2.0 billion of 5.300 % Senior Notes due 2021 and $ 2.0 billion of 6.000 % Senior Notes due 2024; • Amended the $ 1.25 billion of 5.125 % Senior Notes due 2025 and $ 1.25 billion of 5.375 % Senior Notes due 2027, which represent indebtedness to affiliates, to change the maturity dates thereof to April 15, 2021 and April 15, 2022, respectively (the “2025 and 2027 Amendments”); and • Made an additional payment for requisite consents to DT of $ 13 million. These payments were recognized as a reduction to Long-term debt to affiliates in our Consolidated Balance Sheets. In accordance with the consents received from DT, on December 20, 2018, T-Mobile USA, the guarantors and Deutsche Bank Trust Company Americas, as trustee, executed and delivered the 38 th supplemental indenture to the Indenture, pursuant to which, with respect to certain T-Mobile USA Senior Notes held by DT, the Debt Amendments (as defined below under “Consents on Debt to Third Parties”) and the 2025 and 2027 Amendments became effective immediately prior to the consummation of the Merger. Senior Notes to Affiliates On July 4, 2020, we redeemed $ 1.25 billion aggregate principal amount of our 5.125 % Senior Notes to affiliates due 2021. The notes were redeemed at a redemption price equal to 100.00 % of the principal amount of the notes (plus accrued and unpaid interest thereon), and were paid on July 6, 2020. The write off of discounts was approximately $ 15 million and was included in Other expense, net in our Consolidated Statements of Comprehensive Income and Losses on redemption of debt in our Consolidated Statements of Cash Flows. Consents on Debt to Third Parties On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement, we obtained consents necessary to effect certain amendments to our Senior Notes to third parties in connection with the Business Combination Agreement. Pursuant to the Consent Solicitation Statement, third-party note holders agreed, among other things, to consent to increasing the amount of Secured Indebtedness under credit facilities that can be incurred from the greater of $ 9.0 billion and 150 % of Consolidated Cash Flow to the greater of $ 9.0 billion and an amount that would not cause the Secured Debt to Cash Flow Ratio (calculated net of cash and cash equivalents) to exceed 2.00 x (the “Ratio Secured Debt Amendments”) and in each case as such capitalized term is defined in the Indenture. In connection with receiving the requisite consents for the Ratio Secured Debt Amendments, we made upfront payments to third-party note holders of $ 17 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt in our Consolidated Balance Sheets. These upfront payments increased the effective interest rate of the related debt. In addition, note holders agreed, among other things, to allow certain entities related to Sprint’s existing spectrum securitization notes program (“Existing Sprint Spectrum Program”) to be non-guarantor Restricted Subsidiaries, provided that the principal amount of the spectrum notes issued and outstanding under the Existing Sprint Spectrum Program does not exceed $ 7.0 billion and that the principal amount of such spectrum notes reduces the amount available under the credit facilities ratio basket, and to 102 Index for Notes to the Consolidated Financial Statements revise the definition of GAAP to mean generally accepted accounting principles in effect from time to time, unless the Company elects to “freeze” GAAP as of any date, and to exclude the effect of the changes in the accounting treatment of lease obligations (the “Existing Sprint Spectrum and GAAP Amendments,” and together with the Ratio Secured Debt Amendments, the “Debt Amendments”). In connection with receiving the requisite consents for the Existing Sprint Spectrum and GAAP Amendments, we made upfront payments to third-party note holders of $ 14 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt in our Consolidated Balance Sheets. These upfront payments increased the effective interest rate of the related debt. In connection with obtaining the requisite consents, on May 20, 2018, T-Mobile USA, the guarantors and Deutsche Bank Trust Company Americas, as trustee, executed and delivered the 37 th supplemental indenture to the Indenture, pursuant to which, with respect to each of our Senior Notes to third parties, all the amendments mentioned above (collectively, the “Debt Amendments”) would become effective immediately prior to the consummation of the Merger. We paid third-party bank fees associated with obtaining the requisite consents related to the Debt Amendments of $ 6 million during the second quarter of 2018, which we recognized as Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. On April 1, 2020, in connection with the closing of the Merger, we made additional payments to third-party note holders for requisite consents related to the Ratio Secured Debt Amendments of $ 54 million and related to the Existing Sprint Spectrum and GAAP Amendments of $ 41 million. These payments were recognized as a reduction to Long-term debt in our Consolidated Balance Sheets. These payments increased the effective interest rate of the related debt. Spectrum Financing On April 1, 2020, in connection with the closing of the Merger, we assumed Sprint’s spectrum-backed notes, which are collateralized by the acquired directly held and third-party leased Spectrum licenses (collectively, the “Spectrum Portfolio“) transferred to wholly owned bankruptcy-remote special purpose entities (collectively, the “Spectrum Financing SPEs”). As of December 31, 2020, the total outstanding obligations under these Notes was $ 4.6 billion. In October 2016, certain subsidiaries of Sprint Communications, Inc. transferred the Spectrum Portfolio to the Spectrum Financing SPEs, which was used as collateral to raise an initial $ 3.5 billion in senior secured notes (the “2016 Spectrum-Backed Notes”) bearing interest at 3.360 % per annum under a $ 7.0 billion securitization program. The 2016 Spectrum-Backed Notes are repayable over a five-year term, with interest-only payments over the first four quarters and amortizing quarterly principal payments thereafter commencing December 2017 through September 2021. During the year ended December 31, 2020, we made scheduled principal repayments of $ 656 million, resulting in a total principal amount outstanding related to the 2016 Spectrum-Backed Notes of $ 656 million as of December 31, 2020, which was classified as Short-term debt in the Consolidated Balance Sheets . In March 2018, Sprint issued approximately $ 3.9 billion in aggregate principal amount of senior secured notes (the “2018 Spectrum-Backed Notes” and together with the 2016 Spectrum-Backed Notes, the “Spectrum-Backed Notes”) under the existing $ 7.0 billion securitization program, consisting of two series of senior secured notes. The first series of notes totaled $ 2.1 billion in aggregate principal amount, bears interest at 4.738 % per annum, and has quarterly interest-only payments until June 2021, and amortizing quarterly principal amounts thereafter commencing in June 2021 through March 2025. As of December 31, 2020, $ 394 million of the aggregate principal amount was classified as Short-term debt in the Consolidated Balance Sheets. The second series of notes totaled approximately $ 1.8 billion in aggregate principal amount, bears interest at 5.152 % per annum, and has quarterly interest-only payments until June 2023, and amortizing quarterly principal amounts thereafter commencing in June 2023 through March 2028. The Spectrum Portfolio, which also serves as collateral for the Spectrum-Backed Notes, remains substantially identical to the original portfolio from October 2016. Simultaneously with the October 2016 offering, Sprint Communications, Inc. entered a long-term lease with the Spectrum Financing SPEs for the ongoing use of the Spectrum Portfolio. Sprint Communications, Inc. is required to make monthly lease payments to the Spectrum Financing SPEs in an aggregate amount that is market-based relative to the spectrum usage rights as of the closing date and equal to $ 165 million per month. The lease payments, which are guaranteed by T-Mobile subsidiaries, are sufficient to service all outstanding series of the 2016 Spectrum Backed Notes and the lease also constitutes collateral for the senior secured notes. Because the Spectrum Financing SPEs are wholly owned T-Mobile subsidiaries, these entities are consolidated and all intercompany activity has been eliminated. Each Spectrum Financing SPE is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the respective Spectrum Financing SPE, to be satisfied out of the Spectrum Financing SPE’s assets prior to any assets of such Spectrum Financing SPE becoming available to T-Mobile. Accordingly, the assets of each Spectrum 103 Index for Notes to the Consolidated Financial Statements Financing SPE are not available to satisfy the debts and other obligations owed to other creditors of T-Mobile until the obligations of such Spectrum Financing SPE under the spectrum-backed senior secured notes are paid in full. Certain provisions of the Spectrum Financing facility require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash. Restricted Cash Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash. Standby Letters of Credit For the purposes of securing our obligations to provide device insurance services and for purposes of securing our general purpose obligations, we maintain standby letters of credit with certain financial institutions. We assumed certain of Sprint’s standby letters of credit in the Merger. Our outstanding standby letters of credit were $ 555 million and $ 113 million as of December 31, 2020 and 2019, respectively. Note 9 – Tower Obligations Existing CCI Tower Lease Arrangements In 2012, we conveyed to Crown Castle International Corp. (“CCI”) the exclusive right to manage and operate approximately 7,100 tower sites (“CCI Lease Sites”) via a master prepaid lease with site lease terms ranging from 23 to 37 years (the “2012 Tower Transaction”). CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately $ 2.0 billion, exercisable at the end of the lease term. We lease back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms. Assets and liabilities associated with the operation of the tower sites were transferred to special purpose entities (“SPEs”). Assets included ground lease agreements or deeds for the land on which the towers are situated, the towers themselves and existing subleasing agreements with other mobile network operator tenants that lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as they lack sufficient equity to finance their activities. We have a variable interest in the Lease Site VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Lease Site VIE’s economic performance. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the Lease Site SPEs are not included in our consolidated financial statements. However, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would de-recognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the CCI Lease Sites tower assets remained on our balance sheet. We recorded long-term financial obligations in the amount of the net proceeds received and recognize interest on the tower obligations at a rate of approximately 8 % using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI and through net cash flows generated and retained by CCI from operation of the tower sites. Acquired CCI Tower Lease Arrangements Prior to the Merger, Sprint entered into a lease-out and leaseback arrangement with Global Signal Inc., a third party that was subsequently acquired by CCI, that conveyed to CCI the exclusive right to manage and operate approximately 6,400 tower sites (“Master Lease Sites”) via a master prepaid lease. These agreements were assumed upon the close of the Merger, at which point the remaining term of the lease-out was approximately 17 years with no renewal options. CCI has a fixed price purchase option for all (but not less than all) of the leased or subleased sites for approximately $ 2.3 billion, exercisable one year prior to the 104 Index for Notes to the Consolidated Financial Statements expiration of the agreement and ending 120 days prior to the expiration of the agreement. We lease back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms. We considered if this arrangement resulted in the sale of the Master Lease Sites for which we would de-recognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the Master Lease Sites tower assets remained on our balance sheet. As of the Merger date, we recognized Property and equipment with a fair value of $ 2.8 billion and tower obligations related to amounts owed to CCI under the leaseback of $ 1.1 billion. Additionally, we recognized $ 1.7 billion in Other long-term liabilities associated with contract terms that are unfavorable to current market rates, which includes unfavorable terms associated with the fixed-price purchase option in 2037. We recognize interest expense on the tower obligations at a rate of approximately 6 % using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI. The tower assets are reported in Property and equipment, net in our Consolidated Balance Sheets and are depreciated to their estimated residual values over the expected useful life of the tower, which is 20 years. The following table summarizes the balances associated with both of the tower arrangements in the Consolidated Balance Sheets: (in millions) December 31, 2020 December 31, 2019 Property and equipment, net $ 2,838 $ 198 Tower obligations 3,028 2,236 Other long-term liabilities 1,712 — Future minimum payments related to the tower obligations are approximately $ 397 million for the year ending December 31, 2021, $ 716 million in total for the years ending December 31, 2022 and 2023, $ 598 million in total for years ending December 31, 2024 and 2025, and $ 624 million in total for years thereafter. We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites and the Master Lease Sites. These contingent obligations are not included in Operating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. Under the arrangement, we remain primarily liable for ground lease payments on approximately 900 sites and have included lease liabilities of $ 282 million in our Operating lease liabilities as of December 31, 2020. Note 10 – Revenue from Contracts with Customers Disaggregation of Revenue We provide wireless communications services to three primary categories of customers: • Postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, wearables, DIGITS, or other connected devices which includes tablets and SyncUP products. Our postpaid customers include customers of T-Mobile; • Prepaid customers generally include customers who pay for wireless communications services in advance. Our prepaid customers include customers of T-Mobile and Metro by T-Mobile; and • Wholesale customers include Machine-to-Machine and Mobile Virtual Network Operator customers that operate on our network but are managed by wholesale partners. Postpaid service revenues, including postpaid phone revenues and postpaid other revenues, were as follows: Year Ended December 31, (in millions) 2020 2019 2018 Postpaid service revenues Postpaid phone revenues $ 33,939 $ 21,329 $ 19,745 Postpaid other revenues 2,367 1,344 1,117 Total postpaid service revenues $ 36,306 $ 22,673 $ 20,862 105 Index for Notes to the Consolidated Financial Statements We operate as a single operating segment. The balances presented within each revenue line item in our Consolidated Statements of Comprehensive Income represent categories of revenue from contracts with customers disaggregated by type of product and service. Service revenues also include revenues earned for providing value added services to customers, such as device insurance services. Revenue generated from the lease of mobile communication devices is included within Equipment revenues in our Consolidated Statements of Comprehensive Income. We provide wireline communication services to domestic and international customers. Wireline service revenues of $ 626 million for the year ended December 31, 2020, relate to the wireline operations acquired in the Merger and are presented in Roaming and other service revenues in our Consolidated Statements of Comprehensive Income. Equipment revenues from the lease of mobile communication devices were as follows: Year Ended December 31, (in millions) 2020 2019 2018 Equipment revenues from the lease of mobile communication devices $ 4,181 $ 599 $ 692 Contract Balances The opening and closing balances of our contract asset and contract liability balances from contracts with customers as of December 31, 2019 and December 31, 2020, were as follows: (in millions) Contract Assets Contract Liabilities Balance as of December 31, 2019 $ 63 $ 560 Balance as of December 31, 2020 278 824 Change $ 215 $ 264 Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract. Through the Merger, we acquired contracts assets associated with promotional bill credits and subsidized devices with a value of $ 154 million as of April 1, 2020. The change in the existing and acquired contract asset balance includes customer activity related to new promotions, offset by billings on existing contracts and impairment which is recognized as bad debt expense. The current portion of our Contract assets of approximately $ 204 million and $ 50 million as of December 31, 2020 and 2019, respectively, was included in Other current assets in our Consolidated Balance Sheets. Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. Through the Merger, we assumed contract liabilities with a value of $ 336 million as of April 1, 2020. Additional changes in contract liabilities are primarily related to the volume and rate plans of active prepaid customers. Contract liabilities are primarily included in Deferred revenue in our Consolidated Balance Sheets. Revenues for the years ended December 31, 2020 and 2019, include the following: Year Ended December 31, (in millions) 2020 2019 Amounts included in the beginning of year contract liability balance $ 545 $ 643 Remaining Performance Obligations As of December 31, 2020, the aggregate amount of transaction price allocated to remaining service performance obligations for postpaid contracts with subsidized devices and promotional bill credits that result in an extended service contract is $ 1.5 billion. We expect to recognize revenue as service is provided on these postpaid contracts over an extended contract term of 24 months. Transaction price allocated to remaining service performance obligations associated with subsidized devices and promotional bill credits acquired through the Merger at April 1, 2020, was $ 1.0 billion. Through the Merger, on April 1, 2020, we acquired contracts associated with lease promotional credits with aggregate amount of transaction price allocated to remaining service and lease performance obligations of $ 4.8 billion and $ 2.6 billion, respectively. As of December 31, 2020, the aggregate amount of transaction price allocated to remaining service and lease 106 Index for Notes to the Consolidated Financial Statements performance obligations associated with operating leases was $ 2.1 billion and $ 1.2 billion, respectively. We expect to recognize this revenue as service is provided over the lease contract term of 18 months. Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less have been excluded from the above, which primarily consists of monthly service contracts. Certain of our wholesale, roaming and other service contracts include variable consideration based on usage. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of December 31, 2020, the aggregate amount of the contractual minimum consideration for wholesale, roaming and other service contracts is $ 1.3 billion, $ 1.1 billion and $ 317 million for 2021, 2022, and 2023 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to nine years . Contract Costs The total balance of deferred incremental costs to obtain contracts was $ 1.1 billion and $ 906 million as of December 31, 2020 and 2019, respectively, and is included in Other assets in our Consolidated Balance Sheets. Deferred contract costs incurred to obtain postpaid service contracts are amortized over a period of 24 months. The amortization period is monitored to reflect any significant change in assumptions. Amortization of deferred contract costs is included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income and was $ 865 million and $ 604 million for the years ended December 31, 2020 and 2019, respectively. Immediately preceding the close of the Merger, Sprint had deferred costs to obtain postpaid contracts of approximately $ 1.7 billion. This balance was adjusted to zero as part of our purchase price allocation. Contract costs capitalized for new postpaid contracts will accumulate in Other assets in our Consolidated Balance Sheets from the Merger close date. As a result, there was a net benefit to Operating income in our Consolidated Statements of Comprehensive Income during the year ended December 31, 2020, as capitalization of costs exceed amortization. As capitalized costs amortize into expense over time, the accretive benefit to Operating income is expected to moderate in 2021 and normalize in 2022. The deferred contract cost asset is assessed for impairment on a periodic basis. There were no impairment losses recognized on deferred contract cost assets for the years ended December 31, 2020 and 2019. Note 11 – Employee Compensation and Benefit Plans Under our 2013 Omnibus Incentive Plan and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan that T-Mobile assumed in connection with the closing of the Merger, as described below (the “Incentive Plans”), we are authorized to issue up to 101 million shares of our common stock. Under our Incentive Plans, we can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to eligible employees, consultants, advisors and non-employee directors. As of December 31, 2020, there were approximately 25 million shares of common stock available for future grants under our Incentive Plans. We grant RSUs to eligible employees, key executives and certain non-employee directors and performance-based restricted stock units (“PRSUs”) to eligible key executives. RSUs entitle the grantee to receive shares of our common stock upon vesting (with vesting generally occurring annually over a three-year period), subject to continued service through the applicable vesting date. PRSUs entitle the holder to receive shares of our common stock at the end of a performance period of generally up to three years if the applicable performance goals are achieved and generally subject to continued service through the applicable performance period. The number of shares ultimately received by the holder of PRSUs is dependent on our business performance against the specified performance goal(s) over a pre-established performance period. We also maintain an employee stock purchase plan (“ESPP”), under which eligible employees can purchase our common stock at a discounted price. 107 Index for Notes to the Consolidated Financial Statements Stock-based compensation expense and related income tax benefits were as follows: As of and for the Year Ended December 31, (in millions, except shares, per share and contractual life amounts) 2020 2019 2018 Stock-based compensation expense $ 694 $ 495 $ 424 Income tax benefit related to stock-based compensation $ 132 $ 92 $ 81 Weighted average fair value per stock award granted $ 96.27 $ 73.25 $ 61.52 Unrecognized compensation expense $ 592 $ 515 $ 547 Weighted average period to be recognized (years) 1.9 1.6 1.8 Fair value of stock awards vested $ 1,315 $ 512 $ 471 Stock Awards On April 1, 2020, we closed the Merger to combine T-Mobile and Sprint pursuant to the Business Combination Agreement. Pursuant to the Business Combination Agreement, upon the completion of the Merger, T-Mobile assumed Sprint’s stock compensation plans. In addition, pursuant to the Business Combination Agreement, at the Effective Time, each outstanding option to purchase Sprint common stock (other than under Sprint’s Employee Stock Purchase Plan), each award of time-based RSUs in respect of shares of Sprint common stock and each award of performance-based RSUs in respect of shares of Sprint common stock, in each case, that was outstanding as of immediately prior to the Effective Time was automatically adjusted by the Exchange Ratio (as defined in the Business Combination Agreement) and converted into an equity award of the same type covering shares of T-Mobile common stock, on the same terms and conditions, (including, if applicable, any continuing vesting requirements (but excluding any performance-based vesting conditions)) under the applicable Sprint plan and award agreement in effect immediately prior to the Effective Time (the “Assumed Awards”). The applicable amount of performance-based RSUs eligible for conversion was based on formulas and approximated 100% of target. Any accrued but unpaid dividend equivalents with respect to any such award of time-based RSUs or performance-based RSUs were assumed by T-Mobile at the Effective Time and became an obligation with respect to the applicable award of RSUs in respect of shares of T-Mobile common stock. On April 22, 2020, we filed a Form S-8 to register a total of 25,304,224 shares of common stock, representing those covered by the Sprint Corporation 1997 Long-Term Stock Incentive Program, the Sprint Corporation 2007 Omnibus Incentive Plan and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan (the “2015 Plan”) that T-Mobile assumed in connection with the closing of the Merger. This included 7,043,843 shares of T-Mobile common stock issuable upon exercise or settlement of the Assumed Awards held by current directors, officers, employees and consultants of T-Mobile or its subsidiaries who were directors, officers, employees and consultants of Sprint or its subsidiaries immediately prior to the Effective Time, as well as (i) 12,420,945 shares of T-Mobile common stock that remain available for issuance under the 2015 Plan and (ii) 5,839,436 additional shares of T-Mobile common stock subject to awards granted under the 2015 Plan that may become available for issuance under the 2015 Plan if any awards under the 2015 Plan are forfeited, lapse unexercised or are settled in cash. 108 Index for Notes to the Consolidated Financial Statements Time-Based Restricted Stock Units and Restricted Stock Awards (in millions, except shares, per share and contractual life amounts) Number of Units or Awards Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Nonvested, December 31, 2019 10,503,211 $ 67.31 0.9 $ 824 Assumed through acquisition 1,852,527 83.90 Granted 5,891,303 97.18 Vested ( 7,112,552 ) 69.32 Forfeited ( 1,033,267 ) 84.52 Nonvested, December 31, 2020 10,101,222 84.61 0.9 1,362 Performance-Based Restricted Stock Units and Restricted Stock Awards (in millions, except shares, per share and contractual life amounts) Number of Units or Awards Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Nonvested, December 31, 2019 3,803,539 $ 69.78 1.0 $ 300 Assumed through acquisition 3,535,384 83.90 Granted 1,212,522 110.38 Performance award achievement adjustments (1) 887,528 70.96 Vested ( 6,127,838 ) 77.11 Forfeited ( 138,034 ) 83.90 Nonvested, December 31, 2020 3,173,101 86.58 1.0 428 PRSUs included in the table above are shown at target. Share payout can range from 0 % to 200 % based on different performance outcomes. Weighted average grant date fair value of RSU and PRSU assumed through acquisition is based on the fair value on the date assumed. (1) Represents PRSUs granted prior to 2020 for which the performance achievement period was completed in 2020, resulting in incremental unit awards. These PRSU awards are also included in the amount vested in 2020. Payment of the underlying shares in connection with the vesting of RSU and PRSU awards generally triggers a tax obligation for the employee, which is required to be remitted to the relevant tax authorities. We have agreed to withhold shares of common stock otherwise issuable under the RSU and PRSU awards to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 4,441,107 and 2,094,555 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $ 439 million and $ 156 million to the appropriate tax authorities for the years ended December 31, 2020 and 2019, respectively. Employee Stock Purchase Plan Our ESPP allows eligible employees to contribute up to 15 % of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15 % discount applied to the closing stock price on the first or last day of the six-month offering period, whichever price is lower. The number of shares issued under our ESPP was 2,144,036 and 2,091,650 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the number of securities remaining available for future sale and issuance under the ESPP was 4,253,858 . Sprint’s ESPP was terminated prior to the Merger close and legacy Sprint employees were eligible to enroll in our ESPP on August 15, 2020. Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of (i) 5,000,000 shares of our common stock, and (ii) the number of shares of T-Mobile common stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of January 1, 2020 and 2021, respectively. 109 Index for Notes to the Consolidated Financial Statements Stock Options Stock options outstanding relate to the Metro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and Restated Metro Communications, Inc. 2004 Equity Incentive Compensation Plan, the Layer3 TV, Inc. 2013 Stock Plan, and the Sprint 2015 Plan (collectively, the “Stock Option Plans”). No new awards may be granted under the Stock Option Plans, and no awards were granted during the year ended December 31, 2020. The following activity occurred under the Stock Option Plans: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Outstanding at December 31, 2019 194,942 $ 13.80 2.9 Assumed through acquisition 1,635,518 33.37 Exercised ( 906,295 ) 53.02 Expired/canceled ( 5,470 ) 49.75 Outstanding at December 31, 2020 918,695 51.77 4.0 Exercisable at December 31, 2020 917,955 51.79 4.0 Weighted average grant date fair value of stock options assumed through acquisition is based on the fair value on the date assumed. Stock options exercised under the Stock Option Plans generated proceeds of approximately $ 48 million and $ 1 million for the years ended December 31, 2020 and 2019, respectively. The grant-date fair value of share-based incentive compensation awards attributable to post-combination services, including restricted stock units and stock options, from our Merger with Sprint was approximately $ 163 million. Pension and Other Post Retirement Benefits Plans Upon the completion of our Merger with Sprint, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”) as well as other postretirement employee benefit plans. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for the participants. The plan assets acquired and obligations assumed were recognized at fair value on the Merger close date. The objective for the investment portfolio of the Pension Plan is to achieve a long-term nominal rate of return, net of fees, that exceeds the Pension Plan's long-term expected rate of return on investments for funding purposes. To meet this objective, our investment strategy is governed by an asset allocation policy, whereby a targeted allocation percentage is assigned to each asset class as follows: 24 % to U.S. equities; 17 % to international equities; 44 % to fixed income investments; 11 % to real estate investments; and 4 % to other investments including hedge funds. Actual allocations are allowed to deviate from target allocation percentages within a range for each asset class as defined in the investment policy. The long-term expected rate of return on plan assets was 5 % for the year ended December 31, 2020, while the actual rate of return on plan assets was 21 % during that period. The long-term expected rate of return on investments for funding purposes is 4 % for the year ended December 31, 2021. The components of net expense recognized for the Pension Plan were as follows: (in millions) Year Ended December 31, 2020 Interest on projected benefit obligations $ 52 Expected return on pension plan assets ( 45 ) Net pension expense $ 7 110 Index for Notes to the Consolidated Financial Statements The net expense associated with the Pension Plan is included in Other expense, net of our Consolidated Statements of Comprehensive Income. Investments of the Pension Plan are measured at fair value on a recurring basis, which is determined using quoted market prices or estimated fair values. As of December 31, 2020, 12 % of the investment portfolio was valued at quoted prices in active markets for identical assets, 85 % was valued using quoted prices for similar assets in active or inactive markets, or other observable inputs, and 3 % was valued using unobservable inputs that are supported by little or no market activity, the majority of which used the net asset value per share (or its equivalent) as a practical expedient to measure the fair value. The fair values of our Pension Plan assets and certain other postretirement benefit plan assets in aggregate were $ 1.2 billion and $ 1.4 billion and our accumulated benefit obligations in aggregate were $ 2.1 billion and $ 2.3 billion as of April 1, 2020 and December 31, 2020, respectively. As a result, the plans were underfunded by approximately $ 892 million and $ 828 million as of April 1, 2020 and December 31, 2020, respectively, and were recorded in Other long-term liabilities in our Consolidated Balance Sheets. In determining our pension obligation for the year ended December 31, 2020, we used a weighted-average discount rate of 3 %. During the year ended December 31, 2020, we made contributions of $ 58 million to the benefit plans. No contributions were made by T-Mobile in fiscal periods prior to 2020. We expect to make contributions to the Plan of $ 89 million through the year ending December 31, 2021. Future benefits expected to be paid are approximately $ 97 million for the year ending December 31, 2021, $ 198 million in total for the years ending December 31, 2022 and 2023, $ 206 million in total for the years ending December 31, 2024 and 2025, and $ 548 million in total for the years ending December 31, 2026, through December 31, 2030. Employee Retirement Savings Plan We sponsor retirement savings plans for the majority of our employees under Section 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $ 179 million, $ 119 million and $ 102 million for the years ended December 31, 2020, 2019 and 2018, respectively. Note 12 – Discontinued Operations On July 26, 2019, we entered into an Asset Purchase Agreement with Sprint and DISH. On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment. Pursuant to the First Amendment to the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction in accordance with the Asset Purchase Agreement on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Consent Decree. On July 1, 2020, pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $ 1.4 billion from DISH for the Prepaid Business, subject to a working capital adjustment. The close of the Prepaid Transaction did not have a significant impact on our Consolidated Statements of Comprehensive Income. The assets of the Prepaid Business included EIP receivables originated pursuant to financed equipment purchases by customers of the Prepaid Business. At the time of the Prepaid Transaction, DISH did not hold certain licenses required to purchase or originate such contracts. In order to transfer the economics of the contracts to DISH without transferring ownership of them, the parties entered into a Participation Agreement under which we agreed to transfer a 100 % participation interest in the contracts to DISH. Under the terms of the agreement, DISH retains all cash flows collected on these assets, and there is no recourse against us for any credit losses on such loans. The proceeds received from DISH in exchange for this participation interest was a component of total consideration received for the Prepaid Transaction. We will temporarily continue to originate equipment installment contracts on DISH’s behalf under the same terms in exchange for an amount equal to the initial outstanding principal balance of the originated contracts, again without recourse against us for any credit losses. Of the total $ 1.4 billion of proceeds received under the Prepaid Transaction, approximately $ 162 million was allocated to the EIP receivables to which we transferred DISH a 100 % participation interest. We accounted for this portion of the proceeds as a secured borrowing and present it in Other, net, within Net cash provided by (used in) financing activities in our Consolidated Statements of Cash Flows accordingly. The remaining $ 1.2 billion was allocated to the divested net assets of the Prepaid 111 Index for Notes to the Consolidated Financial Statements Business. The net cash received for the Prepaid Business is presented in Proceeds from the divestiture of prepaid business within Net cash used in investing activities in our Consolidated Statements of Cash Flows. The results of the Prepaid Business include revenues and expenses directly attributable to the operations disposed. Corporate and administrative expenses, including Interest expense, not directly attributable to the operations were not allocated to the Prepaid Business. The results of the Prepaid Business from April 1, 2020, through December 31, 2020, are presented in Income from discontinued operations, net of tax in our Consolidated Statements of Comprehensive Income. The components of discontinued operations from the Merger close date of April 1, 2020, through December 31, 2020, were as follows: (in millions) Year Ended December 31, 2020 Major classes of line items constituting pretax income from discontinued operations Prepaid revenues $ 973 Roaming and other service revenues 27 Total service revenues 1,000 Equipment revenues 270 Total revenues 1,270 Cost of services 25 Cost of equipment sales 499 Selling, general and administrative 314 Total operating expenses 838 Pretax income from discontinued operations 432 Income tax expense ( 112 ) Income from discontinued operations $ 320 Net cash provided by operating activities from the Prepaid Business included in the Consolidated Statements of Cash Flows for the year ended December 31, 2020, were $ 611 million, all of which relates to the operations of the Prepaid Business during the three months ended June 30, 2020. There were no cash flows from investing or financing activities related to the Prepaid Business for the year ended December 31, 2020. Continuing Involvement Upon the closing of the Prepaid Transaction, we and DISH entered into (i) a License Purchase Agreement pursuant to which (a) DISH has the option to purchase certain 800 MHz spectrum licenses for a total of approximately $ 3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) we will have the option to lease back from DISH, as needed, a portion of the spectrum sold for an additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for our provisioning of transition services to DISH in connection with the Prepaid Business for a period of up to three years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the provisioning of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an Option to Acquire Tower and Retail Assets, offering DISH the option to acquire certain decommissioned towers and retail locations from us, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction. In the event DISH breaches the License Purchase Agreement or fails to deliver the purchase price following the satisfaction or waiver of all closing conditions, DISH’s sole liability is to pay us a fee of approximately $ 72 million. Additionally, if DISH does not exercise the option to purchase the 800 MHz spectrum licenses, we have an obligation to offer the licenses for sale through an auction. If the specified minimum price of $ 3.6 billion was not met in the auction, we would retain the licenses. As the sale of 800 MHz spectrum licenses is not expected to close within one year, the criteria for presentation as an asset held for sale is not met. Cash flows associated with the Master Network Services Agreement and Transition Services Agreement are included within Net cash provided by operating activities in our Consolidated Statements of Cash Flows. 112 Index for Notes to the Consolidated Financial Statements Note 13 – Income Taxes Our sources of Income before income taxes were as follows: Year Ended December 31, (in millions) 2020 2019 2018 U.S. $ 3,493 $ 4,557 $ 3,686 Foreign 37 46 231 Income from continuing operations before income taxes $ 3,530 $ 4,603 $ 3,917 Income tax expense is summarized as follows: Year Ended December 31, (in millions) 2020 2019 2018 Current tax benefit (expense) Federal $ 17 $ 24 $ 39 State ( 84 ) ( 70 ) ( 63 ) Foreign ( 10 ) 2 ( 25 ) Total current tax expense ( 77 ) ( 44 ) ( 49 ) Deferred tax benefit (expense) Federal ( 676 ) ( 954 ) ( 750 ) State ( 34 ) ( 125 ) ( 160 ) Foreign 1 ( 12 ) ( 70 ) Total deferred tax expense ( 709 ) ( 1,091 ) ( 980 ) Total income tax expense $ ( 786 ) $ ( 1,135 ) $ ( 1,029 ) The reconciliation between the U.S. federal statutory income tax rate and our effective income tax rate is as follows: Year Ended December 31, 2020 2019 2018 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Effect of law and rate changes ( 0.8 ) 0.4 1.9 Change in valuation allowance ( 2.6 ) ( 1.8 ) ( 1.6 ) State taxes, net of federal benefit 4.8 5.1 4.8 Foreign taxes, net of federal benefit 0.3 0.3 2.4 Permanent differences 0.4 0.6 0.7 Federal tax credits, net of reserves ( 0.9 ) ( 0.8 ) ( 2.9 ) Equity-based compensation ( 2.5 ) ( 0.6 ) ( 0.8 ) Non-deductible compensation 2.3 0.6 0.8 Other, net 0.3 ( 0.1 ) — Effective income tax rate 22.3 % 24.7 % 26.3 % 113 Index for Notes to the Consolidated Financial Statements Significant components of deferred income tax assets and liabilities, tax effected, are as follows: (in millions) December 31, 2020 December 31, 2019 Deferred tax assets Loss carryforwards $ 4,540 $ 823 Lease liabilities 8,031 3,403 Property and equipment 90 — Reserves and accruals 1,348 659 Federal and state tax credits 411 331 Other 2,665 903 Deferred tax assets, gross 17,085 6,119 Valuation allowance ( 878 ) ( 129 ) Deferred tax assets, net 16,207 5,990 Deferred tax liabilities Spectrum licenses 17,518 5,902 Property and equipment — 2,506 Lease right-of-use assets 7,239 2,881 Other intangible assets 912 19 Other 504 289 Total deferred tax liabilities 26,173 11,597 Net deferred tax liabilities $ 9,966 $ 5,607 Classified on the balance sheet as: Deferred tax liabilities $ 9,966 $ 5,607 As of December 31, 2020, we have tax effected federal net operating loss (“NOL”) carryforwards of $ 3.5 billion, state NOL carryforwards of $ 1.5 billion and foreign NOL carryforwards of $ 67 million, expiring through 2040. Federal and certain state NOLs generated in and after 2018 do not expire. As of December 31, 2020, our tax effected federal, state and foreign NOL carryforwards for financial reporting purposes were approximately $ 176 million, $ 455 million and $ 26 million, respectively, less than our NOL carryforwards for federal, state and foreign income tax purposes, due to unrecognized tax benefits of the same amount. The unrecognized tax benefit amounts exclude offsetting tax effects of $ 144 million in other jurisdictions. As of December 31, 2020, we have research and development, foreign tax and other general business credit carryforwards with a combined value of $ 569 million for federal income tax purposes, an immaterial amount of which begins to expire in 2021. As a result of the Merger, we acquired additional deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. Due to the size and complexity of the Merger, our estimate of these amounts is preliminary and is subject to finalization and adjustment, which could be material, during the measurement period of up to one year from the Merger close date. During the measurement period, we will adjust these amounts if new information is obtained about facts or circumstances that existed as of the acquisition date that, if known, would have changed these amounts. See Note 2 - Business Combination for further information. As of December 31, 2020, 2019 and 2018, our valuation allowance was $ 878 million, $ 129 million and $ 210 million, respectively. The change from December 31, 2019, to December 31, 2020, primarily related to $ 848 million of deferred tax assets acquired via the Merger for which a valuation allowance is deemed necessary, partially offset by a reduction in the valuation allowance against deferred tax assets in federal and certain other jurisdictions associated with additional tax attribute utilization and expiration. The change from December 31, 2018, to December 31, 2019, primarily related to a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions resulting from legal entity reorganizations. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided. It is possible that our valuation allowance may change within the next 12 months. We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are currently under examination by various states. Management does not believe the resolution of any of the audits will result in a material change to our financial condition, results of operations or cash flows. The IRS has concluded its audits of our federal tax returns through the 2009 tax year; however, NOL and other carryforwards for certain audited periods remain open for examination. U.S. federal, state and foreign examination for years prior to 2001 are generally closed. 114 Index for Notes to the Consolidated Financial Statements A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows: Year Ended December 31, (in millions) 2020 2019 2018 Unrecognized tax benefits, beginning of year $ 514 $ 462 $ 412 Gross increases to tax positions in prior periods 6 — 16 Gross decreases to tax positions in prior periods ( 28 ) — ( 11 ) Gross increases to current period tax positions 45 64 39 Gross increases due to current period business acquisitions 624 — 10 Gross decreases due to settlements with taxing authorities ( 2 ) ( 12 ) ( 4 ) Unrecognized tax benefits, end of year $ 1,159 $ 514 $ 462 As of December 31, 2020, 2019 and 2018, we had $ 857 million, $ 310 million and $ 263 million, respectively, in unrecognized tax benefits that, if recognized, would affect our annual effective tax rate. The balance as of December 31, 2020 includes measurement period adjustments associated with the Merger to reflect facts and circumstances in existence as of the effective time of the Merger. Our estimate of these unrecognized tax benefits is preliminary and is subject to finalization and adjustment, which could be material, during the measurement period of up to one year from the Merger close date. Penalties and interest on income tax assessments are included in Selling, general and administrative expenses and Interest expense, respectively, in our Consolidated Statements of Comprehensive Income. The accrued interest and penalties associated with unrecognized tax benefits are insignificant. Note 14 – SoftBank Equity Transaction On June 22, 2020, we entered into a Master Framework Agreement (the “Master Framework Agreement”) by and among the Company, SoftBank, SoftBank Group Capital Ltd, a wholly owned subsidiary of SoftBank (“SBGC”), Delaware Project 4 L.L.C., a wholly owned subsidiary of SoftBank, Delaware Project 6 L.L.C., a wholly owned subsidiary of SoftBank, Claure Mobile LLC (“CM LLC”), DT, and T-Mobile Agent LLC, a wholly owned subsidiary of the Company. The Master Framework Agreement and related transactions were entered into to facilitate SoftBank’s monetization of a portion of our common stock held by SoftBank (the “SoftBank Monetization”). In connection with the Master Framework Agreement, DT waived the restriction on the transfer under its Proxy, Lock-Up and ROFR Agreement, dated April 1, 2020, with SoftBank (the “SoftBank Proxy Agreement”) with respect to approximately 198 million shares of our common stock held by SoftBank (the “Released Shares”). Upon the close of the Public Equity Offering (as defined below), we received a payment from SoftBank for $ 304 million for our role in facilitating the SoftBank Monetization. The payment received from SoftBank, net of tax, of $ 230 million was recorded as Additional paid-in capital in our Consolidated Balance Sheets and is presented as a reduction of Repurchases of common stock within Net cash provided by (used in) financing activities within our Consolidated Statements of Cash Flows . Under the terms of the Master Framework Agreement and the agreements contemplated thereby, SBGC sold the Released Shares to us, and we participated in the following transactions: Public Equity Offering On June 26, 2020, we completed a registered public offering of approximately 154.1 million shares of our common stock ( the “Public Equity Offering”) at a price of $ 103.00 per share. The net proceeds of the Public Equity Offering were used to repurchase an equal number of issued and outstanding shares of our common stock from SBGC, pursuant to a Share Repurchase Agreement, dated as of June 22, 2020 (the “Share Repurchase Agreement”), between us and SBGC. Mandatory Exchangeable Offering Concurrent with the Public Equity Offering, we sold approximately 19.4 million shares of our common stock to a third-party trust. The net proceeds from the sale of shares to the trust were used to repurchase an equal number of issued and outstanding shares of our common stock from SBGC. The trust issued mandatory exchangeable trust securities, which entitle holders to receive quarterly distributions from the trust and a final mandatory exchange price to be settled on June 1, 2023 (“Mandatory Exchangeable Offering”). 115 Index for Notes to the Consolidated Financial Statements The trust was required to use a portion of the net proceeds from the Mandatory Exchangeable Offering to purchase U.S. Treasury securities, to fund quarterly distributions on the mandatory exchangeable trust securities, and the holders of the mandatory exchangeable trust securities will be entitled to a final mandatory exchange amount on June 1, 2023 that will depend on the daily volume-weighted average price of shares of our common stock. The sale of shares through the Public Equity Offering and to the trust occurred simultaneously with the purchase of shares from SBGC. These simultaneous transactions did not result in a net change to our treasury shares or shares of common stock outstanding. As these transactions occurred with separate counterparties, the exchange of shares and cash are presented on a gross basis in our Consolidated Statement of Stockholders’ Equity and Consolidated Statements of Cash Flows, respectively. The shares sold are presented in Shares issued in secondary offering and the shares purchased from SBGC are presented in Shares repurchased from SoftBank within our Consolidated Statement of Stockholders’ Equity. The cash received from the sale of shares is presented in Issuance of common stock and the cash paid to purchase shares from SoftBank are presented in Repurchases of common stock within Net cash provided by (used in) financing activities within our Consolidated Statements of Cash Flows. The Company is not affiliated with the trust, will not retain any proceeds from the offering of the trust securities, and will have no ongoing interest, economic or otherwise, in the trust securities. Rights Offering The Master Framework Agreement provides for the issuance of registered, transferable subscription rights (the “Rights Offering”) resulting in the sale of 19,750,000 shares of our common stock to our stockholders (other than SoftBank, DT and Marcelo Claure and their respective affiliates, who agreed to waive their ability to exercise or transfer such rights). The subscription rights provided the stockholders the option to purchase one share of common stock for every 20 shares of common stock owned, at the same price per share as the common stock sold in the Public Equity Offering of $ 103.00 per share. The Rights Offering exercise period expired on July 27, 2020. On August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock. The net proceeds from the Rights Offering were used to purchase an equal number of shares from SBGC pursuant to the Share Repurchase Agreement. Marcelo Claure The Master Framework Agreement provided for the purchase of 5.0 million shares of our common stock by Marcelo Claure, a member of our board of directors, from us at the same price per share as the common stock sold in the Public Equity Offering of $ 103.00 per share. Following receipt of the necessary regulatory approvals on July 16, 2020, the sale of shares to Marcelo Claure occurred simultaneously with our purchase of an equivalent number of shares from SBGC at the same price per share pursuant to the Share Repurchase Agreement. Ownership Following the SoftBank Monetization As of December 31, 2020, DT and SoftBank held, directly or indirectly, approximately 43.4 % and 8.6 %, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0 % of the outstanding T-Mobile common stock held by other stockholders. The SoftBank Proxy Agreement remains in effect with respect to the remaining shares of our common stock held by SoftBank. In addition, on June 22, 2020, DT, CM LLC, and Marcelo Claure entered into a Proxy, Lock-Up and ROFR Agreement (the “Claure Proxy Agreement,” together with the SoftBank Proxy Agreement, the “Proxy Agreements”), pursuant to which any shares of our common stock acquired after June 22, 2020 by Mr. Claure or CM LLC, an entity controlled by Mr. Claure, other than shares acquired as a result of Mr. Claure’s role as a director or officer of the Company, will be voted in the manner as directed by DT. Accordingly, as a result of the Proxy Agreements, DT has voting control as of December 31, 2020 over approximately 52.3 % of the outstanding T-Mobile common stock. 116 Index for Notes to the Consolidated Financial Statements DT Call Option In exchange for DT consenting to the transfer of the Released Shares and as provided for in the Master Framework Agreement, DT received direct and indirect call options over up to approximately 101.5 million shares of our common stock held by SBGC. The arrangement provided DT with a fixed-price call option to purchase up to approximately 44.9 million shares at a price of $ 101.46 per share indirectly from SBGC through a back-to-back arrangement where (i) DT could purchase such shares from us (the “DT Fixed-Price Call Option”) and (ii) we would fulfill our obligations under the DT Fixed-Price Call Option by simultaneously purchasing the same number of shares on the same economic terms from SBGC (the “T-Mobile Fixed-Price Call Option”). In addition, DT has a floating-price call option to purchase up to approximately 56.6 million shares from SBGC directly. The DT Fixed-Price Call Option and the T-Mobile Fixed-Price Call Option represented free-standing derivatives and were recorded at fair value and marked-to-market each period. As the mark-to-market valuations of the T-Mobile Fixed-Price Call Option and the DT Fixed-Price Call Option moved in equal and offsetting directions, there was no net impact on our Consolidated Statements of Comprehensive Income. On October 6, 2020, we assigned our rights under the T-Mobile Fixed-Price Call Option to DT and DT terminated its right to purchase shares from us under the DT Fixed-Price Call Option, resulting in derecognition of the related derivative asset and liability in equal and offsetting amounts of $ 1.0 billion such that there was no net impact to our Consolidated Statements of Comprehensive Income. Note 15 – Repurchases of Common Stock 2017 Stock Repurchase Program On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $ 1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program completed on April 29, 2018. The following table summarizes information regarding repurchases of our common stock under the 2017 Stock Repurchase Program: (In millions, except shares and per share price) Year ended December 31, Number of Shares Repurchased Average Price Paid Per Share Total Purchase Price 2018 16,738,758 $ 62.96 $ 1,054 Stock Purchases by Affiliate In the first quarter of 2018, DT, our majority stockholder and an affiliated purchaser, purchased 3.3 million additional shares of our common stock at an aggregate market value of $ 200 million in the public market or from other parties, in accordance with the rules of the SEC and other applicable legal requirements. There were no purchases in 2019 and 2020. We did not receive proceeds from these purchases. 117 Index for Notes to the Consolidated Financial Statements Note 16 – Earnings Per Share The computation of basic and diluted earnings per share was as follows: Year Ended December 31, (in millions, except shares and per share amounts) 2020 2019 2018 Income from continuing operations $ 2,744 $ 3,468 $ 2,888 Income from discontinued operations, net of tax 320 — — Net income $ 3,064 $ 3,468 $ 2,888 Weighted average shares outstanding - basic 1,144,206,326 854,143,751 849,744,152 Effect of dilutive securities: Outstanding stock options and unvested stock awards 10,543,102 9,289,760 8,546,022 Weighted average shares outstanding - diluted 1,154,749,428 863,433,511 858,290,174 Basic earnings per share: Continuing operations $ 2.40 $ 4.06 $ 3.40 Discontinued operations 0.28 — — Earnings per share - basic $ 2.68 $ 4.06 $ 3.40 Diluted earnings per share: Continuing operations $ 2.37 $ 4.02 $ 3.36 Discontinued operations 0.28 — — Earnings per share - diluted $ 2.65 $ 4.02 $ 3.36 Potentially dilutive securities: Outstanding stock options and unvested stock awards 80,180 16,359 148,422 SoftBank contingent consideration (1) 36,630,268 — — (1) Represents the weighted average SoftBank Specified Shares outstanding from April 1, 2020, through December 31, 2020. On April 1, 2020, in connection with the closing of the Merger, we amended and restated the Company’s certificate of incorporation in the form of the Fifth Amended and Restated Certificate of Incorporation (the “Restated Certificate”). Pursuant to the Restated Certificate, the authorized capital stock of T-Mobile consists of 2,000,000,000 shares of T-Mobile common stock and 100,000,000 shares of preferred stock, par value $ 0.00001 per share. As of December 31, 2020, we had authorized 100 million shares of preferred stock, with a par value of $ 0.00001 per share. There was no preferred stock outstanding as of December 31, 2020 and 2019. Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive or if there was a loss from continuing operations for the period. The SoftBank Specified Shares Amount of 48,751,557 was determined to be contingent consideration for the Merger and is not dilutive until the defined volume-weighted average price per share is reached. Note 17 – Leases Lessee Through the Merger, we acquired leases of real property, including cell sites, switch sites, dark fiber, retail stores and office facilities and recorded lease liabilities and associated right-of-use assets based on the discounted lease payments. Lease terms that are favorable or unfavorable to market terms were recorded as an adjustment to lease right-of-use assets on our Consolidated Balance Sheets. Favorable and unfavorable leases are amortized on a straight-line basis over the associated remaining lease term. On September 14, 2020, T-Mobile and American Tower Corporation (“American Tower”) entered into a lease agreement (the “American Tower Lease Agreement”) that will enable us to lease American Tower towers through April 2035. The American Tower Lease Agreement extended the term and modified the rental payments for approximately 20,729 American Tower towers currently leased by us. As a result of this modification, we remeasured the associated right-of-use assets and lease liabilities resulting in an increase of $ 11.0 billion to each on the effective date of the modification. 118 Index for Notes to the Consolidated Financial Statements The components of lease expense were as follows: Year Ended December 31, (in millions) 2020 2019 Operating lease expense $ 4,438 $ 2,558 Financing lease expense: Amortization of right-of-use assets 681 523 Interest on lease liabilities 81 82 Total financing lease expense 762 605 Variable lease expense 328 243 Total lease expense $ 5,528 $ 3,406 Information relating to the lease term and discount rate is as follows: Year Ended December 31, 2020 2019 Weighted Average Remaining Lease Term (Years) Operating leases 10 6 Financing leases 3 3 Weighted Average Discount Rate Operating leases 3.9 % 4.8 % Financing leases 3.3 % 4.0 % Maturities of lease liabilities as of December 31, 2020, were as follows: (in millions) Operating Leases Finance Leases Twelve Months Ending December 31, 2021 $ 4,903 $ 1,121 2022 4,354 795 2023 3,759 422 2024 3,339 137 2025 2,807 92 Thereafter 18,940 61 Total lease payments 38,102 2,628 Less: imputed interest 7,515 121 Total $ 30,587 $ 2,507 Interest payments for financing leases were $ 79 million and $ 82 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we have additional operating leases for cell sites and commercial properties that have not yet commenced with future lease payments of approximately $ 227 million. As of December 31, 2020, we were contingently liable for future ground lease payments related to certain tower obligations. These contingent obligations are not included in the above table as the amounts owed are contractually owed by Crown Castle International Corp. based on the subleasing arrangement. See Note 9 - Tower Obligations for further information. 119 Index for Notes to the Consolidated Financial Statements Lessor Through the Merger, we acquired leased wireless devices with a fair value of $ 5.8 billion as of April 1, 2020. The components of leased wireless devices under our Leasing Programs were as follows: (in millions) Average Remaining Useful Life December 31, 2020 December 31, 2019 Leased wireless devices, gross 8 months $ 6,989 $ 1,139 Accumulated depreciation ( 2,170 ) ( 407 ) Leased wireless devices, net $ 4,819 $ 732 For equipment revenues from the lease of mobile communication devices, see Note 10 - Revenue from Contracts with Customers . Future minimum payments expected to be received over the lease term related to leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below: (in millions) Expected Payments Twelve Months Ending December 31, 2021 $ 1,687 2022 92 Total $ 1,779 Note 18 – Commitments and Contingencies Purchase Commitments We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2029. In addition, we have commitments to purchase wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2043. Our purchase commitments, including purchase commitments assumed through the Merger, are approximately $ 5.0 billion for the year ending December 31, 2021, $ 4.5 billion in total for the years ending December 31, 2022 and 2023, $ 2.4 billion in total for the years ending December 31, 2024 and 2025 and $ 1.7 billion in total for the years thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated. Spectrum Leases In connection with the Merger, we assumed certain spectrum lease contracts from Sprint that include service obligations to the lessors. Certain of the spectrum leases provide for minimum lease payments, additional charges, renewal options and escalation clauses. Leased spectrum agreements have varying expiration terms that generally extend through 2050. We expect that all renewal periods in our spectrum leases will be exercised by us. Our spectrum lease and service credit commitments, including renewal periods, are approximately $ 338 million for the year ending December 31, 2021, $ 675 million in total for the years ending December 31, 2022 and 2023, $ 594 million in total for the years ending December 31, 2024 and 2025 and $ 5.1 billion in total for the years thereafter. We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced by services provided and as actual invoices are presented and paid to the lessors. The maximum remaining service commitment on December 31, 2020 was $ 92 million and is expected to be incurred over the term of the related lease agreements, which generally range from 15 to 30 years. Merger Commitments In connection with the regulatory proceedings and approvals of the Transactions, we have commitments and other obligations to various state and federal agencies and certain nongovernmental organizations, including pursuant to the Consent Decree agreed to by us, DT, Sprint, SoftBank and DISH and entered by the U.S. District Court for the District of Columbia, and the 120 Index for Notes to the Consolidated Financial Statements FCC’s memorandum opinion and order approving our applications for approval of the Merger. These commitments and obligations include, among other things, extensive 5G network build-out commitments, obligations to deliver high-speed wireless services to the vast majority of Americans, including Americans residing in rural areas, and the marketing of an in-home broadband product where spectrum capacity is available. Other commitments relate to national security, pricing, service, employment and support of diversity initiatives. Many of the commitments specify time frames for compliance. Failure to fulfill our obligations and commitments in a timely manner could result in substantial fines, penalties, or other legal and administrative actions. We expect that our monetary commitments associated with these matters are approximately $ 23 million for the year ended December 31, 2021, $ 37 million in total for the years ended December 31, 2022 and 2023 and $ 13 million in total for the years ended December 31, 2024 and 2025. These amounts do not represent our entire anticipated costs to achieve specified network coverage and performance requirements, employment targets or commitments to provide access to affordable rate plans, but represent only those amounts for which we are required to make a specified payment in connection with our commitments or settlements. Contingencies and Litigation Litigation Matters We are involved in various lawsuits and disputes, claims, government agency investigations and enforcement actions, and other proceedings (“Litigation Matters”) that arise in the ordinary course of business, which include claims of patent infringement (most of which are asserted by non-practicing entities primarily seeking monetary damages), class actions, and proceedings to enforce FCC rules and regulations. Those Litigation Matters are at various stages, and some of them may proceed to trial, arbitration, hearing, or other adjudication that could result in fines, penalties, or awards of monetary or injunctive relief in the coming 12 months if they are not otherwise resolved. We have established an accrual with respect to certain of these matters, where appropriate, which is reflected in the consolidated financial statements but that is not considered to be, individually or in the aggregate, material. An accrual is established when we believe it is both probable that a loss has been incurred and an amount can be reasonably estimated. For other matters, where we have not determined that a loss is probable or because the amount of loss cannot be reasonably estimated, we have not recorded an accrual due to various factors typical in contested proceedings, including, but not limited to, uncertainty concerning legal theories and their resolution by courts or regulators, uncertain damage theories and demands, and a less than fully developed factual record. We do not expect that the ultimate resolution of these Litigation Matters, individually or in the aggregate, will have a material adverse effect on our financial position, but we note that an unfavorable outcome of some or all of the specific matters identified below could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future. On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC, which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. We recorded an accrual for an estimated payment amount as of December 31, 2020, which was included in Accounts payable and accrued liabilities in our Consolidated Balance Sheets. On April 1, 2020, in connection with the closing of the Merger, we assumed the contingencies and litigation matters of Sprint. Those matters include a wide variety of disputes, claims, government agency investigations and enforcement actions, and other proceedings. These matters include, among other things, certain ongoing FCC and state government agency investigations into Sprint’s Lifeline program. In September 2019, Sprint notified the FCC that it had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint's usage policy for the Lifeline program, due to an inadvertent coding issue in the system used to identify qualifying subscriber usage that occurred in July 2017 while the system was being updated. Sprint has made a number of payments to reimburse the federal government and certain states for excess subsidy payments. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties. In November 2020, we entered into a consent decree with the FCC to resolve certain of these Lifeline matters, which resulted in a payment of $ 200 million by SoftBank. We note that pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses, including those relating to these Lifeline matters. As of December 31, 2020, we have recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters which have not been resolved. We expect that any additional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank. See Note 2 - Business Combination for further information. 121 Index for Notes to the Consolidated Financial Statements Note 19 – Restructuring Costs Upon close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies and reduce redundancies. The major activities associated with the restructuring initiatives to date include contract termination costs associated with the rationalization of retail stores, distribution channels, duplicative backhaul services and other agreements, severance costs associated with the integration of redundant processes and functions and the decommissioning of network infrastructure including cell sites and equipment to achieve synergies in network costs. The following table summarizes the expenses incurred in connection with our restructuring initiatives: (in millions) Year Ended December 31, 2020 Contract termination costs $ 178 Severance costs 385 Network decommissioning 497 Total restructuring plan expenses $ 1,060 The expenses associated with the restructuring initiatives are included in Costs of services and Selling, general and administrative in our Consolidated Statements of Comprehensive Income. No expenses were incurred related to our restructuring initiatives for the year ended December 31, 2019. Our restructuring initiatives also include the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities. Incremental expenses associated with accelerating amortization of the right-of-use assets on lease contracts were $ 153 million for the year ended December 31, 2020 and are included within Costs of services and Selling, general and administrative in our Consolidated Statements of Comprehensive Income. The changes in the liabilities associated with our restructuring initiatives, including expenses incurred and cash payments, are as follows: (in millions) April 1, 2020 Expenses Incurred Cash Payments Adjustments for Non-Cash Items (1) December 31, 2020 Contract termination costs $ — $ 178 $ ( 96 ) $ ( 1 ) $ 81 Severance costs — 385 ( 239 ) ( 94 ) 52 Network decommissioning — 497 ( 403 ) ( 64 ) 30 Total $ — $ 1,060 $ ( 738 ) $ ( 159 ) $ 163 (1) Non-cash items consists of non-cash stock-based compensation included within Severance costs and the write-off of assets within Network decommissioning. The liabilities accrued in connection with our restructuring initiatives are presented in Accounts payable and accrued liabilities in our Consolidated Balance Sheets. Our restructuring activities are expected to occur over the next three years with substantially all costs incurred by the end of fiscal year 2023. We are evaluating additional restructuring initiatives, which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments. 122 Index for Notes to the Consolidated Financial Statements Note 20 – Additional Financial Information Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities are summarized as follows: (in millions) December 31, 2020 December 31, 2019 Accounts payable $ 5,564 $ 4,322 Payroll and related benefits 1,163 802 Property and other taxes, including payroll 1,540 682 Interest 771 227 Commissions 399 251 Toll and interconnect 217 156 Advertising 135 127 Other 407 179 Accounts payable and accrued liabilities $ 10,196 $ 6,746 Book overdrafts included in accounts payable and accrued liabilities were $ 628 million and $ 463 million as of December 31, 2020 and 2019, respectively. Related Party Transactions Deutsche Telekom We have related party transactions associated with DT or its affiliates in the ordinary course of business, which are included in the consolidated financial statements. On April 1, 2020, in connection with the closing of the Merger, we: • Repaid our $ 4.0 billion Incremental Term Loan Facility with DT, consisting of a $ 2.0 billion Incremental Term Loan Facility due 2022 and a $ 2.0 billion Incremental Term Loan Facility due 2024; • Terminated our revolving credit facility with DT; • Repurchased from DT $ 4.0 billion of indebtedness to affiliates, consisting of $ 2.0 billion of 5.300 % Senior Notes due 2021 and $ 2.0 billion of 6.000 % Senior Notes due 2024; • Amended the $ 1.25 billion of 5.125 % Senior Notes due 2025 and $ 1.25 billion of 5.375 % Senior Notes due 2027, which represent indebtedness to affiliates, to change the maturity dates thereof to April 15, 2021 and April 15, 2022, respectively (the “2025 and 2027 Amendments”); and • Made an additional payment for requisite consents to DT of $ 13 million. These payments were recognized as a reduction to Long-term debt to affiliates in our Consolidated Balance Sheets. On July 4, 2020, we redeemed $ 1.25 billion aggregate principal amount of our 5.125 % Senior Notes to affiliates due 2021. Amounts associated with the debt owed to DT are reflected as Short-term debt to affiliates and Long-term debt to affiliates in our Consolidated Balance Sheets. Interest related to this debt is reflected as Interest expense to affiliates in our Consolidated Statements of Comprehensive Income. The following table summarizes the impact of significant transactions with DT or its affiliates included in Operating expenses in the Consolidated Statements of Comprehensive Income: Year Ended December 31, (in millions) 2020 2019 2018 Discount related to roaming expenses $ ( 5 ) $ ( 9 ) $ — Fees incurred for use of the T-Mobile brand 83 88 84 International long distance agreement 47 39 36 We have an agreement with DT in which we receive reimbursement of certain administrative expenses, which was $ 6 million for the year ended December 31, 2020 and $ 11 million for each of the years ended December 31, 2019 and 2018. Amounts due 123 Index for Notes to the Consolidated Financial Statements from and to DT related to these agreements are included in the Consolidated Balance Sheets as “Accounts Receivables from affiliates” and “Payables to affiliates,” respectively. SoftBank On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank related to the SoftBank Monetization as described in Note 14 - SoftBank Equity Transaction . On July 27, 2020, in connection with the SoftBank Monetization, the Rights Offering exercise period closed, and on August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock. On August 3, 2020, upon completion of the SoftBank Monetization, DT and SoftBank held, directly or indirectly, approximately 43.4 % and 8.6 %, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0 % of the outstanding T-Mobile common stock held by other stockholders. As a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4 % of the outstanding T-Mobile common stock. In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC. On October 6, 2020, we assigned our rights under the T-Mobile Fixed-Price Call Option to DT and DT terminated its right to purchase shares from us under the DT Fixed-Price Call Option, resulting in derecognition of the related der ivative asset and liability in equal and offsetting amounts such that there was no net impact to our Consolidated Statements of Comprehensive Income . Brightstar We had arrangements with Brightstar, a subsidiary of SoftBank, whereby Brightstar provided supply chain and inventory management services to us in our indirect channels. We have terminated or restructured most of our arrangements with Brightstar, except for reverse logistics and trade-in services. Revenue resulting from sale of devices distributed by Brightstar is generally recognized when sold to an end customer (commonly referred to as recognized on a sell-through basis). Amounts included in our consolidated financial statements associated with these supply chain and inventory management arrangements with Brightstar were not material. For more information regarding our related party transactions with SoftBank, see Note 2 - Business Combination and Note 14 - SoftBank Equity Transaction of the Notes to the Consolidated Financial Statements. Supplemental Consolidated Statements of Cash Flows Information The following table summarizes T-Mobile’s supplemental cash flow information: Year Ended December 31, (in millions) 2020 2019 2018 Interest payments, net of amounts capitalized $ 2,733 $ 1,128 $ 1,525 Operating lease payments 4,619 2,783 — Income tax payments 218 88 51 Non-cash investing and financing activities Non-cash beneficial interest obtained in exchange for securitized receivables 6,194 6,509 4,972 Non-cash consideration for the acquisition of Sprint 33,533 — — Change in accounts payable and accrued liabilities for purchases of property and equipment 589 ( 935 ) 65 Leased devices transferred from inventory to property and equipment 2,795 1,006 1,011 Returned leased devices transferred from property and equipment to inventory ( 1,460 ) ( 267 ) ( 326 ) Short-term debt assumed for financing of property and equipment 38 800 291 Operating lease right-of-use assets obtained in exchange for lease obligations 14,129 3,621 — Financing lease right-of-use assets obtained in exchange for lease obligations 1,273 1,041 885 124 Index for Notes to the Consolidated Financial Statements Note 21 – Subsequent Events Subsequent to December 31, 2020, on January 14, 2021, we issued an aggregate of $ 3.0 billion in Senior Notes. A portion of the senior secured term loan commitments were reduced by an amount equal to the aggregate gross proceeds of the Senior Notes, which reduced the commitment to $ 2.0 billion. See Note 8 – Debt for further information. Subsequent to December 31, 2020, on February 1, 2021, the valuation process was complete with respect to Shentel’s wireless telecommunication assets used to provide services pursuant to the Management Agreement, for which we previously exercised an option to purchase. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase of Shentel’s wireless telecommunication assets and expect the transaction to close in the second quarter of 2021 after satisfying customary conditions to closing. The base purchase price of the wireless telecommunication assets is $ 1.9 billion, subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. See Note 2 – Business Combination for further information. Supplementary Data Quarterly Financial Information (Unaudited) The following table includes the impact of the Merger on a prospective basis from the Merger close date of April 1, 2020. Historical results have not been restated and reflect standalone T-Mobile. (in millions, except share and per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Full Year 2020 Total revenues $ 11,113 $ 17,671 $ 19,272 $ 20,341 $ 68,397 Operating income 1,539 820 2,565 1,712 6,636 Income (loss) from continuing operations 951 ( 210 ) 1,253 750 2,744 Income from discontinued operations, net of tax — 320 — — 320 Net income 951 110 1,253 750 3,064 Earnings per share Basic earnings per share Continuing operations $ 1.11 $ ( 0.17 ) $ 1.01 $ 0.60 $ 2.40 Discontinued operations — 0.26 — — 0.28 Basic $ 1.11 $ 0.09 $ 1.01 $ 0.60 $ 2.68 Diluted earnings per share Continuing operations $ 1.10 $ ( 0.17 ) $ 1.00 $ 0.60 $ 2.37 Discontinued operations — 0.26 — — 0.28 Diluted $ 1.10 $ 0.09 $ 1.00 $ 0.60 $ 2.65 Weighted average shares outstanding Basic 858,148,284 1,236,528,444 1,238,450,665 1,241,578,615 1,144,206,326 Diluted 865,998,532 1,236,528,444 1,249,798,740 1,251,566,899 1,154,749,428 2019 Total revenues $ 11,080 $ 10,979 $ 11,061 $ 11,878 $ 44,998 Operating income 1,476 1,541 1,471 1,234 5,722 Income from continuing operations 908 939 870 751 3,468 Net income 908 939 870 751 3,468 Earnings per share Basic $ 1.07 $ 1.10 $ 1.02 $ 0.88 $ 4.06 Diluted $ 1.06 $ 1.09 $ 1.01 $ 0.87 $ 4.02 Weighted average shares outstanding Basic 851,223,498 854,368,443 854,578,241 856,294,467 854,143,751 Diluted 858,643,481 860,135,593 862,690,751 864,158,739 863,433,511 Earnings per share is computed independently for each quarter and the sum of the quarters may not equal earnings per share for the full year. There were no discontinued operations for the year ended December 31, 2019. 125 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.